Terminology
GDP Deflator GDP measured in nominal
terms expresses the value of
goods and services using the
current level of prices, however
to compare GDP (of different
years) one needs the measure of
Real GDP which uses constant
base-year prices to value the
goods and services produced in
any year. The GDP deflator for a
particular year, calculated as
(Nominal GDP/Real GDP)×100,
reflects the average prices of
all goods and services produced
in the economy for that year.
The GDP deflator is similar to
the consumer price index in that
it measures inflation; or the
cost of living at a particular
period of time. However, CPI
measures a fixed basket of goods
and services while the GDP
deflator takes into account a
much broader variety of goods
and services, especially new
ones that are introduced into
the economy. Further,
technically the GDP deflator
gives a measure of inflation for
all goods produced domestically
(CPI may include goods produced
abroad but entering the domestic
consumers’ basket).
Goods and Services Tax (GST)
is a
consumption-based tax levied on goods and services and is aimed at bringing
uniform indirect taxation regime throughout the country. See more details here...
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H
Hedge
Fund A private investment
fund or pool that trades and invests
in various assets such as securities,
commodities, currency, and derivatives
on behalf of its clients, typically
wealthy individuals.
Hedger
A trader who enters into a position
in a futures market opposite to a
position held in the cash market to
minimize the risk of financial loss from
an adverse price change; or who
purchases or sells futures as a
temporary substitute for a cash
transaction that will occur later. One
can hedge either a long cash market
position (e.g., one owns the
cash commodity) or a short cash market
position (e.g., one plans on
buying the cash commodity in the
future).
Hedger A trader
who enters into a position in a futures
market opposite to a position held in
the cash market to minimize the risk of
financial loss from an adverse price
change; or who purchases or sells
futures as a temporary substitute for a
cash transaction that will occur later.
One can hedge either a long cash market
position (e.g., one owns the
cash commodity) or a short cash market
position (e.g., one plans on
buying the cash commodity in the
future).
I
IDR is an
instrument denominated in Indian Rupees
in the form of a depository receipt
created by a Domestic Depository
(custodian of securities registered with
the Securities and Exchange Board of
India) against the underlying equity of
issuing company to enable foreign
companies to raise funds from the Indian
securities Markets. The foreign issuing
company must have pre‐issue paid‐up
capital and free reserves of at least
US$ 50 million and a minimum average
market capitalization (during the last 3
years) in its parent country of at least
US$ 100 million; a continuous trading
record or history on a stock exchange in
its parent country for at least three
immediately preceding years; a track
record of distributable profits for at
least three out of immediately preceding
five years. In every issue of IDR—(i) At
least 50% of the IDRs issued shall be
subscribed to by QIBs;(ii) The balance
50% shall be available for subscription
by non‐institutional entities.
IIP Index of
Industrial Production is an abstract
number, the magnitude of which
represents the status of production in
the industrial sector for a given
period of time as compared to a
reference period of time It is a
statistical device which enables us to
arrive at a single representative
figure to measure the general level of
industrial activity in the economy.
Measures of inflation
in India
Interest
Rate is the
amount of money in percent that a
borrower pays to borrow money.
For example, if a Rs.1,00,000 loan has
a 5% interest rate, the borrower will
have to pay RS.5,000 each year until
the money is paid back.
Interest
rate Swaps
are OTC product
involving an exchange of interest
flows in the same currency between
two counter parties. These
instruments never involve exchange
of principal amount. Exchange of
interest rates can be Fixed
vs Floating or may be Floating vs Floating.
Under the former type, Fixed Rate
Payer will have to pay Fixed Swap
rate while the Floating Rate Payer
will pay only Floating interest
rate. Settlement will be on a net
basis. Both the legs of interest
rates are determined with reference
to acceptable benchmark rates.

Examples:
INR-MIBOR
(Mumbai Inter Bank Offer Rate):
Pay simple Fixed Rate against receipt of
overnight
Floating Rate for tenures
up to (and including) one year. Pay
simple semi-annual Fixed Rate against
receipt of overnight Floating Rate for
tenures longer than one year.
INR-MITOR
(Mumbai Inter Bank Tom(orrow)
Offer Rate): Pay simple Fixed Rate
against receipt of overnight Floating
Rate for tenures up to (and including)
one year. Pay simple semi-annual Fixed
Rate against receipt of overnight
Floating Rate for tenures longer than 1
year.
INR-MIFOR
(Mumbai Inter Bank Forward Offered
Rate): Pay annual Fixed Rate
against receipt of three month Floating
Rate for tenures up to (and including)
one year. Pay semi-annual Fixed Rate
against receipt of six month Floating
Rate for tenures longer than one year.
INR-MIOIS
(Mumbai Inter Bank
Overnight Indexed Swap): Pay
annual Fixed Rate against receipt of
three month Floating Rate for tenures up
to (and including) one year. Pay
semi-annual Fixed Rate against receipt
of six month Floating Rate for tenures
longer than one year.
INR-BMK
(Indian Government securities
benchmark rate): Pay annual Fixed
Rate against receipt of annualized
Floating Rate for all tenures.
INR-CMT
(Indian Constant Maturity Treasury
rate): Pay annual Fixed Rate against
receipt of annualized Floating Rate for
all tenures.
OIS (Overnight Indexed
Swap): Overnight Indexed Swaps are
benchmarked typically against FIMMDA-NSE
MIBOR rates.
Investment
Bank Investment banks provide
financial services for governments,
companies or extremely rich individuals.
They differ from commercial banks where
you have your savings or your mortgage.

L
Leveraging
Leveraging or gearing means using
debt to supplement investment. The
more one borrows on top of the funds
(or equity) one already has, the more
highly leveraged one becomes.
Leveraging can maximise both gains and
losses. Deleveraging means reducing
the amount of borrowing.
LIBOR London
Interbank Offered Rate is a daily
reference rate based on the interest
rates at which banks offer to lend
unsecured funds to other banks in the
London
wholesale money market (or interbank
market). LIBOR will be slightly higher
than the London Interbank Bid Rate
(LIBID), the rate at which banks are
prepared to accept deposits. The LIBOR
is fixed on a daily basis by the
British Bankers' Association. The
LIBOR is derived from a filtered
average of the world's most
creditworthy banks' interbank deposit
rates for larger loans with maturities
between overnight and one full year.
Countries that rely on the LIBOR for a
reference rate include the United States, Canada, Switzerland and the
U.K.
Limited
liability Confines an
investor's loss in a business to the
amount of capital they invested. If a
person invests $100,000 in a company
and it goes bankrupt, the investor
will lose only his/her investment and
not more.
Liquidity
The liquidity of an asset
is how easy it is to convert it
into cash, without losing much
value. A current account, for
example, is more liquid than a
house, as, if one needed to sell
a house quickly to pay bills it
may involve a drop in the price
substantially to get a sale. Loans
to
Deposit Ratio
For financial institutions,
the sum of their loans divided
by the sum of their deposits.

Liquidity Adjustment
Facility (LAF) is a facility
through which banks pledge
their surplus government
bonds with the central bank
(RBI) and borrow funds for a
day or week-end at a
pre-announced rate - the repo rate.
M
Margin The
amount of money or collateral
deposited by a customer with his
broker, by a broker with a
clearing
member, or by a clearing member
with a clearing organization.
The margin is not partial
payment on a purchase.
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(1)
Initial
margin is the amount of margin required
by the broker when a futures position is
opened; (2) Maintenance margin is an
amount that must be maintained on
deposit at all times. If the equity in a
customer's account drops to or below the
level of maintenance margin because of
adverse price movement, the broker must
issue a margin call to restore the
customer's equity to the initial level.
Exchanges specify levels of initial
margin and maintenance margin for each
futures contract, but futures commission
merchants may require their customers to
post margin at higher levels than those
specified by the exchange.
Marginal
Standing Facility (MSF) a
new facility introduced by the RBI in
its monetary
policy for 2011-12, under
which banks could borrow funds from RBI
at a rate which is 1% above the repo
rate under the liquidity adjustment
facility (see
above)
against pledging government securities.
The MSF rate is pegged 100 basis points
or a percentage point above the repo
rate.
Mark-to-market
Recording the value of an asset on a
daily basis according to current market
prices. So for a futures contract, what
it would be worth if realised today
rather than at the specified future
date. Also marked-to-market.
MIBOR
Mumbai
Interbank Bid-Offer rate is equivalent
to daily call rate; it is the
overnight market determined benchmark
rate at which funds can be borrowed.
FIMMDA-NSE MIBID/MIBOR is jointly
disseminated by FIMMDA as well as
NSEIL The MIBID/MIBOR rate is used as
a bench mark rate for majority of
deals struck for Interest Rate Swaps,
Forward Rate Agreements, Floating Rate
Debentures and Term Deposits.
Monetary
aggregates
measure the amount of money
circulating in an economy.
Statistically, they are items in the
balance sheet of the banking system.
In the balance sheet the liabilities
items are ordered, starting with very
narrow definitions of money (such as
notes and coin) and gradually widening
through various types of bank accounts
(e.g. term deposits) to very board
items which include sophisticated
products like financial derivatives.
The Monetary aggreagates or Ms usually
range from M0
(narrowest) to M4(broadest),
where
narrow money measures cover highly
liquid forms of money (money as a
means of exchange) while broad money
includes the less liquid forms (money
as a store of value).
Reserve money
or the monetary base is a
measure of the money supply which
combines any liquid or cash assets
held within a central bank and the
amount of physical currency
circulating in the economy. RM is
supplied by the RBI and is expanded
when the central bank either lends to
the government, or buys foreign
exchange thus adding to reserves. Part
of RM is held by the public as Currency with the Public.
Commercial banks hold RM mostly in the
form of eposits with RBI (and a small
amount as cash in hand). M1 denotes
money that is highly liquid or most
readily usable for settling
transactions. Reserve money (M0)
induces broad money (M3) through the money multiplier: RM
gets incorporated into the financial
system either as currency with the
public or as additional cash with
banks. As per norms of fractional
reserve banking the surplus
cash (over and above the reserve
requirement) is lent out by banks to
the public, who, in turn, retain a
part of this in currency and deposit
the rest with banks, which gets
further lent and re-deposited, and so
on. The end-result is that every unit
of base money or RM generates multiple
units of broad money through
successive rounds of
deposit-cum-credit creation; M3
represents the effective liquidity or
purchasing power available in the
system. M3 is determined by the
quantum of RM, the proportion in which
the public distributes its money
holding between currency and bank
deposits and the extent of bank
reserves relative to deposits. The
money multiplier is the
additional/incremental supply of money
that is brought into the system if
reserve money is increased by 1 unit
(or vice versa).
(Reserve
Money) M0 =
Currency in Circulation + Bankers'
Deposits with the RBI + 'Other' Deposits
with the RBI
(Narrow
Money)
M1 =
Currency with the Public + Demand
Deposits with the Banking System
+ 'Other' Deposits with the RBI
= Currency with the
Public + Current Deposits with the
Banking System + Demand Liabilities
Portion of Savings Deposits with the
Banking System + 'Other' Deposits with
the RBI
M2 = M1 + Time
Liabilities Portion of Savings Deposits
with the Banking System + Certificates
of Deposit issued by Banks + Term
Deposits of residents with a contractual
maturity of up to and including one year
with the Banking
System (excluding
CDs) = Currency with the Public +
Current Deposits with the Banking System
+ Savings Deposits with the Banking
System + Certificates of Deposit issued
by Banks + Term Deposits of residents
with a contractual maturity up to and
including one year with the Banking
System (excluding CDs) + 'Other'
Deposits with the RBI
(Broad
Money)
M3
= M2 + Term Deposits of residents with a
contractual maturity of over one year
with the Banking System + Call/Term
borrowings from 'Non-depository'
Financial Corporations by the Banking
System
= Net bank credit to the Government +
Bank credit to the commercial sector +
Net foreign exchange assets of the
banking sector + Government’s currency
liabilities to the public – Net
non-monetary liabilities of the banking
sector (Other than Time Deposits).
M4 =
M3 + All deposits with post office
savings banks (excluding National
Savings Certificates).
Note: Money
supply indicates holding of money
balances with the public in which
suppliers of money namely, RBI, other
banks and the government are not
included. Thus government deposits with
RBI or other banks, inter-bank deposits
and cash reserves of banks with RBI are
not included in monetary aggregates.
Demand and Time deposits of banks are
included after netting out inter-bank
holdings and government deposits.
For More details
click on:
http://www.rbi.org.in/scripts/PublicationsView.aspx?id=9455
Monetary policy uses
a variety of tools to control money supply
and interest, to influence outcomes
relating to economic growth, inflation,
exchange
rates and unemployment.Monetary
Policy
instruments
include announcement of key
policy rates, open
market operations (OMO) and
through fractional deposit lending
or changes in the reserve requirements.
RBI's
Monetary Policy Instruments
Monetary
policy
is
referred to as being either an expansionary
policy, or a contractionary
policy, where an
expansionary policy increases the
total supply of money in the economy,
and a contractionary policy decreases
the total money supplyor raises the
interest rate. Expansionary policy is
traditionally used to combat unemployment
or create further output expansion,
while contractionary policy involves
raising interest rates
in order to combat inflation.
Further, monetary policies are
described as — accommodative
(or dovish), if
the interest rate set by the central
monetary authority is intended to
create economic growth; tight
(or hawkish) if
intended to reduce inflation or neutral, if it is
intended to maintain status quo.
Impossible
trinity: in the context of Monetary
Policy the impossible trinity is
referred to as a co-existence of
Open capital account, Pegged currency
regime, Independent monetary policy. A
country with an open capital account
cannot expect to have an independent
monetary policy if it runs a pegged
exchange rate. Pegging the exchange rate
induces a loss of monetary policy
autonomy.
Measures
the level of support the RBI provides to
the Centre's borrowing program.
Money Markets Markets
dealing in borrowing and lending on a
short-term basis.
Mortgage-backed
Securities These are securities
made up of mortgage debt or a collection
of mortgages. Banks repackage debt from
a number of mortgages which can be
traded. Selling mortgages off frees up
funds to lend to more homeowners.
MSS
Market
Stabilisation Scheme of RBI involves
the sale/auction of instruments
(Government securities/ bonds) to
curb the excess liquidity in the
system created due to the consistent
dollar inflows into the foreign
exchange market. 
MWYC
The Marketwide Yield Curve would show
the average yield (YTM) for liquid
Indian Government bonds which are
regularly traded in the secondary
market. 
N
Nationalisation
The act of bringing an industry or
assets like land and property under
state control.
Negative
Equity Refers to a
situation in which, say, the value of
one’s house is below the amount of the
mortgage that still has to be paid
off. 
O
Offer
An indication of
willingness to sell at a given
price; opposite of bid, the price
level of the offer may be referred
to as the “ask.”
Offset Liquidating a purchase of
futures contracts through the sale
of an equal number of contracts of
the same delivery month, or
liquidating a short sale of
futures through the purchase of an
equal number of contracts of the
same delivery month.
Oil Futures click to see in
details 
Open Market Operation
(OMO)
An oft-used
instrument for sterilisation by
the central bank to modulate
liquidity conditions in the money
markets caused by surge in capital
flows. In India,
Under the OMO, RBI buys or
sells/issues Government securities
to suck up excess liquidity to check
the expansion in the monetary base
which can lead to problems like
higher inflation. OMOs are
particularly effective if inflows
are temporary and there exists a
near perfect elastic demand for
domestic GSecs. However, if the
demand for GSecs is not perfectly
elastic, OMOs can cause domestic
interest rates to rise, this in
turn, would nullify the impact of
sterilisation since higher interest
rates could then attract larger
capital inflows.
Open
Interest The total
number of futures contracts long or
short in a delivery month or market
that has been entered into and not
yet liquidated by an offsetting
transaction or fulfilled by
delivery.
A
financial derivative that
represents a contract sold
by one party (option writer) to
another party (option holder). The
contract offers the buyer the right,
but not the obligation, to buy (call)
or sell (put) a security or other
financial asset at an agreed-upon
price (the strike price) during a
certain period of time or on a
specific date (excercise date).
Options are extremely versatile
securities that can be used in many
different ways. Traders use options to
speculate, which is a relatively risky
practice, while hedgers use options to
reduce the risk of holding an asset.
In terms of speculation, option buyers
and writers have conflicting views
regarding the outlook on the
performance of an underlying security.
Over-the-Counter
(OTC) The trading of commodities,
contracts, or other instruments not
listed on any exchange. OTC
transactions can occur
electronically or over the
telephone.  
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