Bank Rate

Definition: The Bank Rate also called as a Discount Rate is the rate at which the commercial bank rediscounts their bills of exchange from the central bank. As per the RBI Act, 1935 the bank rate is the standard rate at which the bank buy or rediscounts the bills of exchange and other commercial papers…

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Open Market Operations

Definition: The Open Market Operations refers to the sale and purchase  of government securities and treasury bills by the central bank of the country with a view to regulate the supply of money in the economy. When the central bank wants to increase the money supply in the economy, it purchases the government securities, i.e.,…

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Instruments of Monetary Policy

Definition: The Monetary Policy is a process whereby the monetary authority, generally the central bank controls or regulate the money supply in the economy. The central bank uses several instruments of monetary policy, referred to as monetary variables at its discretion, to regulate the credit availability and liquidity (money supply) in a manner that controls…

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Types of Monetary Policy

Definition: The Monetary Policy is a programme of action undertaken by the central banks and other regulatory bodies to control and regulate the money supply to the public and a flow of credit, so as to ensure the stability in price and trust in the currency by targeting the inflation rate and the interest rate.…

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Monetary Policy

Definition: The Monetary Policy is the plan of action undertaken by the monetary authority, especially the central banks, to regulate and control the demand for and supply of money to the public and the flow of credit so as to achieve the macroeconomic goals. The goals of the monetary policy are to control the money…

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Purchasing Power Parity

Definition: The Purchasing Power Parity or PPP theory posit that the relative value of different currencies equates the real purchasing power of each currency in its own country. In other words, under inconvertible paper currency system, the exchange rate between two countries can be determined on the basis of their purchasing power in their own…

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“Speculation” in Foreign Exchange Market

Definition: “Speculation” in Foreign Exchange  is an act of buying and selling the foreign currency under the conditions of uncertainty with a view to earning huge gains. Often, the speculators buy the currency when it is weak and sells when it is strong. Also, if the spot rate of the currency is expected to increase…

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“Arbitrage” in Foreign Exchange Market

Definition: Arbitrage is the process of a simultaneous sale and purchase of currencies in two or more foreign exchange markets with an objective to make profits by capitalizing on the exchange-rate differentials in various markets. The arbitrage opportunities exist due to the inefficiencies of the market. While dealing in the arbitrage trade, an individual can…

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Types of Foreign Exchange Transactions

Definition: The Foreign Exchange Transactions refers to the sale and purchase of foreign currencies. Simply, the foreign exchange transaction is an agreement of exchange of currencies of one country for another at an agreed exchange rate on a definite date. Types of Foreign Exchange Transactions Spot Transaction: The spot transaction is when the buyer and…

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Types of Foreign Exchange Market

Definition: The market in which the foreign currencies are bought and sold is called a Foreign Exchange Market. Here the buyers and sellers are involved in the sale and purchase of currencies of different countries. Types of Foreign Exchange Market Broadly, the foreign exchange market is classified into two categories on the basis of the…

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