Definition: The Fiscal Policy implies the decisions taken by the government with respect to its revenue collection (through taxation), expenditure and other financial operations to accomplish certain national goals. The government uses its expenditure and taxation programmes to generate the desirable effects or eliminate the undesirable effects on the production, employment … [Read more...] about Fiscal Policy
Moral Suasion
Definition: Moral Suasion refers to a method adopted by the central bank to persuade or convince the commercial banks to advance credit in accordance with the directives of the central bank in the economic interest of the country. Simply, the process in which the central bank requests or persuade the commercial banks to comply with the general monetary policy of the central … [Read more...] about Moral Suasion
Lending Margin
Definition: The Lending Margin refers to the gap between the value of the property mortgaged, against which the loan is borrowed, and the actual amount advanced to the borrower. In the above definition, Margin denotes the collateral that the investor has to deposit with a bank so as to cover some or all the credit risk as posed on the banks by the borrower. The risk arises … [Read more...] about Lending Margin
Credit Rationing
Definition: The Credit Rationing is a measure undertaken by the central bank to limit or deny the supply of credit based on the investor’s creditworthiness and an increased loan demand. In other words, a situation where the central bank denies credit to the borrowers who want funds and are willing to pay a higher interest rate is called a credit rationing. This situation … [Read more...] about Credit Rationing
Statutory Liquidity Ratio
Definition: The Statutory Liquidity Ratio (SLR) refers to the proportion of deposits the commercial bank is required to maintain with them in the form of liquid assets in addition to the cash reserve ratio. In the definition, the liquid assets are the assets readily convertible into cash, includes government bonds, or government approved securities, gold, and cash reserve. … [Read more...] about Statutory Liquidity Ratio
Cash Reserve Ratio
Definition: The Cash Reserve Ratio refers to a certain percentage of total deposits the commercial banks are required to maintain in the form of cash reserve with the central bank. The objective of maintaining the cash reserve is to prevent the shortage of funds in meeting the demand by the depositor. The amount of reserve to be maintained depends on the bank’s experience … [Read more...] about Cash Reserve Ratio
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 that can be purchased under this act. Only the approved bills and … [Read more...] about Bank Rate
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., bills, and bonds. On the other hand, the … [Read more...] about Open Market Operations
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 inflation and … [Read more...] about Instruments of Monetary Policy
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. Simply, the process by which the monetary authority, generally … [Read more...] about Types of Monetary Policy