CAIIB BFM Unit 25 - Funcindg & Regulatory Aspects

1.  Cheques and Credit Cards etc are near money and also add to money supply.

2.  The money in circulation is indicated by Broad Money or M3.

3.  The cash component is just 15% of money supply or M3.

4.  The monetary policy of RBI is aimed at controlling the inflation and ensuring stability of financial markets.

5.  Liquidity refers to surplus funds available with banks.

6.  An excess of liquidity leads to inflation while shortage of liquidity may result in high interest rates and depreciation of rupee exchange rate.

7.  CRR is to be calculated on the basis of DTL with a lag of one fortnight.

8.  The interest on CRR is paid at the reverse repo rate of RBI ( presently 6.25% P.A.)

9.  SLR is to be maintained in the form of Cash, Gold and approved securities.

10.  Liquidity adjustment facility (LAF) is the principal operating instrument of RBI’s monetary policy.

11.  LAF is used to day to day liquidity in the market.

12.  LAF refers to RBI lending funds to banking sector through Repo instrument.

13.  RBI also accepts deposits from banks under Reverse Repo.

14.  RBI purchases securities from banks with an agreement to sell back the securities after a fixed period is called Repo.

15.  The Repo rate is 7.25% on par with bank rate and Reverse Repo rate is 6.25%.

16.  The objective of RBI policy is the money market rates should normally move with in the corridor of Repo rates  and Reverse Repo rates.

17.  Banks can borrow and lend overnight upto maximum of 100% and 25% respectively of their net worth.

18.  The securities clearing against assured payment is handled by CCLI.

19.  CCIL is a specialized institution promoted by major banks.

20.  RTGS has been fully activated by RBI from Oct – 2004.

21.  All inter bank payments and high value customer payments are settled instantly under RTGS.

22.  Banks accounts with all the branch offices of RBI are also integrated under RTGS.

23.  The INFINET has helped introduction of SFMS.

24.  The SFMS facilitates domestic transfer of funds and authenticated messages similar to SWIFT used by banks for international messaging.

25.  All security dealings are done through NDS and settled by CCIL.