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SOME BASIC TERMS USED IN BANKING
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§ 1. What is a Repo Rate?
A: Repo rate is the rate at which our banks borrow rupees from
RBI. Whenever the banks have any shortage of funds they can borrow it from RBI.
A reduction in the repo rate will help banks to get money at a cheaper rate.
When the repo rate increases, borrowing from RBI becomes more expensive. Which
means when repo rate increases bank will get money from rbi at higher rate
===bank will lend to customer at higher rate
higher repo===higher rate of loan by banks===reduction in flow
of money as people will not take money at higher rate only needy people will
take......At present the Repo Rate is 8.50%(as on 30/1/12)
2. What is Reverse Repo Rate?
A: This is exact opposite of Repo rate. Reverse Repo rate is the
rate at which Reserve Bank of India (RBI) borrows money from banks. RBI uses
this tool when it feels there is too much money floating in the banking system.
Banks are always happy to lend money to RBI since their money is in safe hands
with a good interest. An increase in Reverse repo rate can cause the banks to
transfer more funds to RBI due to this attractive interest rates.
Banks are happy to lend to RBI because risk factor is negligible
.....means if they lend to other parties then there is a possibility of
repayment failure
so this is also a tool to control flow of funds in economy.
Reverse Repo Rate at present is 7.50%(as on 30/01/12)
3. What is CRR Rate?
A: Cash reserve Ratio (CRR) is the amount of funds that the
banks have to keep with RBI. If RBI decides to increase the percent of this,
the available amount with the banks comes down. RBI is using this method
(increase of CRR rate), to drain out the excessive money from the banks.CRR ---
4.75%
4. What is SLR Rate?
A:SLR (Statutory Liquidity Ratio) is the amount a commercial
bank needs to maintain in the form of cash, or gold or govt. approved
securities (Bonds) before providing credit to its customers.
SLR rate is determined and maintained by the RBI (Reserve Bank
of India) in order to control the expansion of bank credit. SLR is determined
as the percentage of total demand and percentage of time liabilities. Time
Liabilities are the liabilities a commercial bank liable to pay to the
customers on their anytime demand. SLR is used to control inflation and propel
growth. Through SLR rate tuning the money supply in the system can be
controlled efficiently.
5. What is Bank Rate?
A: Bank rate, also referred to as the discount rate, is the rate
of interest which a central bank charges on the loans and advances that it
extends to commercial banks and other financial intermediaries. Changes in the
bank rate are often used by central banks to control the money supply.At
present Bank Rate is 9.50%
6. RTGS ?
What is it: It’s a fund transfer mechanism that enables money to move
from one bank to another on a real time and gross basis. Simply put, real time
means the transaction is settled instantly without any waiting period and gross
means that it is not bunched with any other transaction.
You can transfer a minimum of Rs 2 lakh through RTGS; there is
no upper ceiling though. The bank will charge you Rs25-Rs50 for an outward RTGS
transaction, inward transactions are free. RTGS is the fastest inter-bank money
transfer facility available through secure banking channels in India. But not
all branches in India are RTGS enabled. Visit the Reserve Bank of India’s
(RBI) website for a list of branches where you will get this
facility. The RTGS customer service window for customers is available from 9.00
hours to 16.30 Monday to Friday and 9.00 to 13.30 on Saturdays.
When do you need it: This facility would be handy during an emergency, when
you need to transfer funds quickly, imagine an ill child studying in another
city or a parent in an emergency situation and needing money at once. You would
be able to use this facility if you use Internet banking as a channel.
It is mostly used by high networth individuals and businessmen,
who have at least Rs2 lakh to be transferred business associates or clients.
7. NEFT ?
National electronic funds transfer
What is it: NEFT enables funds transfer from one bank to another but
works a bit differently than RTGS since the settlement takes place in batches
rather than individually, making NEFT slower than RTGS.
The transfer is not direct and RBI acts as the service provider
to transfer the money from one account to another. You can transfer any amount
through NEFT, even a rupee.
You won’t have to pay any fee for inward transfer of funds, but
for outward transactions the charges can be from Rs5-Rs25 depending on the
amount transferred.NEFT can be done 9.00hours to 19.00 hours on weekdays and on
Saturdays 9.00 hours to 13.00 hours.
When do you need it: You can use this facility if you
want to transfer funds online in a day or two.
NEFT can make life easier for those who need to send money to
their parents or children living in another city. It cuts the trouble of
issuing a cheque or draft and posting it.
NEFT, too, can be done only through Internet banking.
Visit RBI website for a list of branches where you will get this
facility.
8. Cheque ?
A: Cheque is a legal instrument to transfer money in writing
signed by the person who deposited , addressed to the banker for paying
money when demand arises ....
Now there are various types of cheques---
a-- Bearer Cheque---when the words or to the bearer is not cancelled
on the cheque then it becomes bearer cheque ....it is very risky as anyone
having a cheque can ask for payment.
b-- Order cheque-- when word bearer is cancelled ....then
payment be made to the party mentioned in cheque .
c--Crossed Cheque-- when two parllel lines are drawn on cheque
and word "Account Payee " is written then its crossed cheque and the
payment of these cheques cannot be obtained from counter of the bank they are
deposited in account only
9. Difference between repo rate and bank rate ?
A. DIFFERENCE BETWEEN BANK RATE AND REPO RATE
BANK RATE ---- IT IS FOR M LONG TERM ..... AND IS THE OUTCOME OF
MONETARY POLICY........BANK RATE DECIDES THE RATE AT WHICH COMMERCIAL BANKS
LEND TO CUSTOMER AS IF BANK RATE INCREASES MEANS BORROWING FROM RBI BECOMES
COSTLY
REPO RATE---- IT IS FOR SHORT TERM...... BASICALLY TO MATCH THE
WORKING CAPITAL NEEDS OF BANKS.......IN THIS COMMERCIAL BANKS SELL THEIR
SECURITIES TO RBI WITH AN AGREEMENT TO REPURCHASE THEM AGAIN AT PRE SETERMINED
RATE.
10. Devaluation ie. decrese of value of rupees against
dollar ?
A. suppose 1$==rs 50
means for purchasing every dollar u have to pay rs 50
now is this ratio becomes 1$==rs 55
then this means u have to pay more
now its impact..........
export sector will be benefited as when they export they get
money in dollars and when they exchange it for rupee then they get more money
..........
import will be discouraged as if u purachse something u have to
pay in dollars and for this u have to first change your currency in dollars and
as rate is more so have to pay more so
this is called the situation of devaluation where export is
promoted and import is curatiled...
11. Inflation, Deflation and Recession ?
A. Inflation is as an increase in the price of bunch of
Goods and services that projects the Indian economy. An increase in inflation
figures occurs when there is an increase in the average level of prices in
Goods and services. Inflation happens when there are fewer Goods and more
buyers; this will result in increase in the price of Goods, since there is more
demand and less supply of the goods.
Deflation is the continuous decrease in prices of goods and
services. Deflation occurs when the inflation rate becomes negative (below
zero) and stays there for a longer period.
A true economic recession can only be confirmed if GDP (Gross
Domestic Product)growth is negative for a period of two or more consecutive
quarters
suppose u r a manufacturer of pen
u mark ur pen cost price is rs 10
if u get 12 on selling it is called inflation
if u get exactly ur cost price ie 10 then its deflation
and if u get below ur cost price ie rs 8 then its recession
so inflation is a situation when demand exceeds supply and hence
producers charge more
recession is a situtaion when producers are not even able to get
their cost price and hence after some time forced to shut down their loss
making company..
12. Merchant Banking ?
A. Merchant banking is concerned with ipo and fpo for issuing
shares in market company has to appoint a merchant banker who is responsible
for all types approvals ,communications like from sebi, rbi etc and merchant
banker have to fulfill all roc (registrar of companies ) filling also.....
13. Money Laundering ?
A. basically it means converting black money into white
money by depositing it into bank........now what happens is the money earned by
drug trafficking or by some other such kind of process are referred as black
money ...........so money launderers deposit this amount in banks
............now there are chances that they may be caught by banks as amount
involved is too much...........so they deposit money in small amounts and later
on withdraw the same or they invest in some small investment schemes......
for getting rid of this KYC NORMS came into play ........ which
means know your customer .......in this customer ahve to deposit their
verification ids and some like details with banks............
14. SEBI--SECURITIES AND EXCHANGE BOARD OF INDIA its
functions ?
A. SEBI is a capital market regulator means all the capital
transactions are goverened by sebi----
its major functions are---
a---protecting the interest of investor in securities market
b--promoting development of securities market
c---regulating the securities market......
15. IRDA---INSURANCE REGULATORY DEVELOPMENT AUTHORITY its
functions ?
A. IRDA is the regulatory authority of insurance business
its functions are
a--protectinginterest of policy holders
b--specifing proper training,qualification etc to insurance
people
c--levying fees ,commision etc for conducting insurance business
d--specifing the manner in which insurance company maintain
their books of accounts
e--specifing margin of solvency
f--specifing general and life insurance business which company
can take
16.Shadow Banking ?
A.shadow banking means those financial transactions which are
not regulated ..... hence the risk involoved in these are very
high..........shadow banking deals in money market instruments......and hence
need money for early repayment .......... now what happens is they invest for
long term .....and borrow for short term.......so this match creates problem
coz of lack of liquidity...........and second thing as they are not regulated
so they cant take help from any other organisation like for eg central
banks.........the crisis which world faced during was coz of shadow banking
also.
17. Shadow clearance ?
A. m explaining it by way of example
suppose sbi got 5 cheques from its customers for clearance and
these cheques are of uco bank ...........no what sbi will do is they make a
bundle of these cheques and send it to uco bank for clearance ......meanwhile
sbi will make entry in their customer account that cheques are being sent for
clearance and this entry is termed as shadow clearance..............and
when uco bank makes payment then sbi will regularise this
shadow clearance and transfer the payment in customer's account........
18. types of bank audit and appointment of auditor ?
A. broadly banks have 3 types of audit---
1--internal audit
2--external audit
3--audit conducted by banks when some person takes loan to check
whether he actually own the property which he is going to mortgage or not
now coming to their appointment
external auditors or u can say statutory auditors are appointed
by banks itself but there is some process
means banks have to get the list of auditors from CAG and then
have to get consent from auditors whether they are willing to work or not and
they must not be disqualified to act as such .........and once they get consent
banks have to send their names to rbi for approval .....
in case of RRB bank have to get approval from central government
internal auditors are appointed by board of directors........
19. Double taxation avoidance agreement ?
A. double taxation aviodance agreement ie dtaa is concerned
with international taxation
for eg--- a person from india wants to setup his induatry in
mauritus so now he have to pay tax as per indian law and as per mauritus law
..... so he is paying tax twice ..... so to avoid this double taxation dtaa is
signed by various countries......now he dont have to pay tax to the tax twice
for same income....
20. Hedging ?
A. hedging is a tool by which risk can be minimised in
forex market........ by taking money from low interest rate country and
investing where interest rate is high............for eg---- suppose mr.a wants
a loan of 1 lkh and in india he is getting loan at 5% and in america at 7%
...... so what he will do is he will take loan from india and invest in
america...... by this he will minimise risk and make profit
21. MAT(Minimum Alternate Tax)
A. MAT(minimum alternate tax) is a tax which industries
have to pay even if they are operating in tax free zone.........this concept
came due to reliance........... what relaince do is they setup their industries
in tax free zone and enjoy whole profits without spending a penny on
tax............ so govt made provisions under which industries have to pay a
minimum tax on their profit......
22. Inflationary gap ?
A. inflationary gap means difference between supply
and demand above full employment .............means if demand exceeds supply
which country can produce at its extreme ..... then this gap is called
inflationary gap............. for eg ---- suppose country demands 10 units
while its supply could only be 5 units .... so the gap of 5 units is inflationary
gap
23.fiat money
a. the money which is not backed by gold or such kind of
reserves...... these are declared by govt thats y they circulate in market
.......
24. Offshore banking
is a type of banking conducted at an offshore bank, which is a
bank located outside the depositor’s own country, usually in an area where the
taxes are low, and there are other financial and legal benefits. These benefits
include, but are not limited to greater privacy due to bank secrecy, easy
access to deposits and protection against local economic, financial, or
political risks.
25.Online banking
allows bank clients to keep track of their finances
whenever they find it convenient. Financial transactions can be conducted
through a secure website owned and operated by a bank, virtual bank, building
society, or credit union. Online banking services have some common features,
which generally fall into several categories. Transactional features pertain to
the carrying out of financial transactions such as opening new accounts,
applying for loans, wire transfers, bill payments, etc. Payments can be made to
third parties, such as telegraphic transfers and bill payments.
Non-transactional features are related to cobrowsing, check links, online
statements, etc. These encompass viewing paid checks, downloading bank
statements, and viewing transactions. Other features relate to the transaction
approval process, management of multiple account users, and
administration.
Online banking services allow bill payment and other
banking transactions over the Internet. With Internet and other advanced
technology, bank customers do not have to go the nearest branch any longer.
They can communicate and shop online and even do their banking. A major benefit
of online banking is that clients do not have to wait for their statements to
arrive so that they can check the account balance. This can be done every day
by reviewing the online account. Clients can check transactions and balances
and look for discrepancies so that they can deal with these promptly. With
access to Internet, online banking can be used practically anywhere. Moreover,
since monthly bills are paid over the Internet, bank clients do not have to
write checks and post payments. After one enters the amount and the payee, the
money is deducted from the client’s account automatically. Then, the good news
is that if you want to go green, this is an opportunity to part with paper
statements.
Since it costs less to process transactions, clients pay less in
many cases. Online banking is typically offered for a small fee, which can be
very low. Bank clients even save on ATM fees and postage. Online banking is not
only convenient but with some banks, it is included in one’s account plan.
Clients may also have access to Western Union money transfers over the Internet
and through mobile banking.
Some customers worry that online statements are not as secure as
paperless ones. However, reputable banks make it clear that their online
statements are completely secure as they use sophisticated security tools and
advanced security systems. In general, protection for the online account is
secured through password authentication. Other security methods have been
developed as well. One security method is the PIN/TAN system in which the TAN
represents a one-time password serving to authenticate transactions. The PIN is
used for login the same way as in other places. TANs are often sent to bank
customers in the form of a list and by postal letter. Another security method
is the so called signature-based online banking. Every transaction is signed
and encrypted in a digital form. The keys to generate and encrypt signatures
may be stored on a memory medium or a smartcard, depending on the type of
implementation.
With regard to attacks on online banking services, one way
involves stealing valid TANs and login information by deceiving bank clients.
Pharming and phishing are two ways to steal user’s information. Trojan horses
and cross-site scripting are other ways to steal account information.
Signature-based online banking is also vulnerable to attacks. Here, the user’s
software is manipulated so that the system shows correct transactions on the
screen while cons hide fake transactions in the background. Unfortunately, in
most cases, the source of intrusion remains unknown.
26 Overdrafts
occur when bank customers withdraw cash from their account, with
the balance going below zero. An overdraft is basically a form of credit
extended by a creditor when the account balance reaches zero. Overdrafts allow
bank clients to withdraw money even when there are no funds in the account. In
other words, banks allow their clients to borrow certain amount of money. With
overdraft accounts, financial institutions cover checks to prevent them from
bouncing. Given that overdrafts are a type of loan, bank clients pay interest
on the overdraft’s loan balance. On the other hand, the interest rate is often
lower compared to credit cards.
Overdrafts may occur for various reasons, among which not
maintaining proper account register, merchant error, unexpected electronic
withdrawals, and more. When the accountholder fails to maintain his account
register well, overspending is due to negligence. Another reason for overdraft
is, in fact, the possibility to overdraw money using an ATM. Some ATMs and
banks allow withdrawals even when cash is insufficient in the account. ATMs are
sometimes unable to communicate with the bank of the accountholder, with this
resulting in automatic authorization of withdrawals. With temporary deposit
holds, banks can put on hold a deposit that has been made to an account. Bank
policies or Regulation CC may be responsible for that. Given that money is not
immediately available, this will result in overdraft fees. Unexpected
electronic withdrawals are yet another reason for overdrafts. This may occur
when the trial period of some recurring service ends. Overdrafts may also occur
due to direct deposit chargeback, recovering overpayment, or wage garnishment.
Finally, overdraft may occur due to merchant error, with a merchant wrongly
debiting a client’s account.
On the other hand, it can be said that an overdraft acts like a
safety net on one’s account. Clients are allowed to borrow up to a specified
limit whenever they do not have money in the account. This is useful in
covering short-term financial problems. Keep in mind that some bank accounts
come with an overdraft facility, but this is not necessarily true for all accounts.
If your account doesn’t, you need to ask your banking institution for an
overdraft facility. The bank’s decision will depend on the client’s record, and
he may be required to pay a fee for setting it up. You will not have to use it
unless you need an overdraft. Moreover, you will not be required to pay
additional charges in case of accidentally overdrawing. Naturally, clients have
to pay the overdraft and interest charges. Rates depend on the bank and can be
variable and fixed. In addition, a monthly charge and arrangement fee may
apply. If you don’t have the bank’s authorization to overdraw, the charges may
be quite high. Your financial institution may not pay direct debits, bounce
checks, and charge a fee for all refused transactions. Administration fees may
be set in place as well.
27. Private banking
A. is a term that encompasses different financial, investment,
and banking services offered to high net worth individuals. Banks provide
personalized services to individuals with sizeable assets through bank
advisors. With regard to wealth management, high net worth individuals have
more wealth than regular bank customers and enjoy access to a large array of
alternative and conventional investment instruments. Private banking aims to
offer such clients the best products and services, suited to their individual
requirements.
Bank advisors provide investment-related advice, customized
financial solutions, credit and liquidity management, estate and tax planning,
retirement planning, and much more. Banking teams operate on the domestic and
international markets to provide investment and banking solutions to persons
from diverse backgrounds. Structured products are featured with returns linked
to currencies, basket of stocks, single stocks, equity indices, interest rates,
etc. Investment protection is also designed to fit the requirements of
individual clients – from 0 percent to 100 percent. In addition, investment
products may be offered with terms from 1 month to 10 years. Private banking
also encompasses alternative investment products which are not associated with
traditional asset classes such as bonds and equities. High net worth
individuals enjoy access to private real estate and equity funds and hedge
funds. Bank advisors also offer a large selection of financial planning
services, including business and family protection, pension consolidation,
saving for retirement, and income planning. Business and family protection
services are designed to protect high net worth individuals and their families from
financial hardship. Income planning aims at income generation through
developing and implementing a personalized investment strategy. Pension
consolidation is a service intended for persons with multiple pension plans.
Bank advisors help high net worth individuals avoid lost opportunities and
problems by consolidating pension plans into a single one. Finally, those who
are saving for retirement are offered help in designing a plan to build up
their wealth and enjoy it post retirement.
28. stop payment
A. occurs when an accountholder asks their bank not to honor
some payment. Stop payments can be made before the receiving party cashes a
check and after the latter is delivered. Stop payment orders are mainly
governed by banking regulations and state laws, and they can vary by bank and
state. Banking institutions usually charge a fee to issue a stop payment. If
the check is issued to pay back a legitimate debt, stopping payment may be
regarded as an act of fraud. State fraud laws determine if this is considered a
criminal act, and laws differ from one state to another.
29.Wire transfer
A. also known as credit transfer, refers to a method of
transferring funds electronically from one institution or person to another.
Wire transfers are made in two different ways. Cash can be transferred at a
cash office or from one bank account to another. Compared to bulk payments,
wire transfer systems are intended to offer individualized transactions.
Examples of such systems are Check21 and ACH. ACH stands for Automated Clearing
House, which functions as an electronic network for making transactions in the
US. This system processes debit and credit transactions in batches and in large
volumes. Credit transfers encompass vendor payments and direct deposits. Direct
debit transfers include, on the other hand, mortgage loans, insurance premiums’
consumer payments, and other types of bills. Check21 is another name for Check
Clearing for the 21st Century Act, which was enacted in 2004. Under this law,
recipients are allowed to create digital versions of paper checks, which are
known as substitute checks. In this way, further processing of the physical
document is not necessary. The effects of this become visible to consumers when
some checks no longer come with their monthly statements. At the same time,
others are returned. In addition, under this law, mobile phones and computer
scanners cannot be used to capture checks’ images with the purpose of
depositing them electronically. This is called remote deposit.
Basically, wire transfers are transfers of money done by a bank,
and both recipients and senders do not touch the funds. It is not difficult to
make a wire transfer, and the first step is to contact your financial
institution online or by phone and provide the required information. This
includes the name of the company or person to have the money wired to, the
routing number of the bank, together with the phone number and address of the
latter, the account number of the recipient, and the contact details of a
person to whom questions can be presented, if needs be. The next step is to
determine the sum of money to be wired and when the recipient needs to have it
sent. The transaction is to be completed through your banking institution. Some
banks allow clients to make transactions over the Internet, but other entities
require that clients contact them by fax or phone. Finally, you have to confirm
that the wire transfer took place. Request a transfer confirmation to be
emailed or faxed or call the receiving bank and ask for confirmation.
Wire transfers are a popular payment method, along with personal
account management, balance transfers, and credit cards. With account
management, clients can transfer money between savings and checking accounts.
In fact, by swiping an ATM card, bank clients authorize a wire transfer from
their bank accounts. At point of sale, transfers are free-of-charge for
customers, but a fee may be charged for other types of transfer. For example,
it will be based on percentage of the amount to be transferred, or it can be a
flat amount. This is oftentimes the case with credit card balance
transfers.
Western Union and some other companies feature an anonymous type
of wire transfer. Customers can go to Western Union, for example, and send
certain amount of money to a branch of Western Union in Jamaica. Even if the
office they visit is in Chicago, they will send cash and pay all applicable
fees. The wire transfer will be made electronically.
Wire transfers have advantages and disadvantages. They are handy
in case you do not have a bank account. However, if you make a wire transfer to
buy something from a private seller, they may provide wrong or false
information.
30.What is PLR?
A: The Prime Interest Rate is the interest rate charged by
banks to their most creditworthy customers (usually the most prominent and
stable business customers). The rate is almost always the same amongst major
banks. Adjustments to the prime rate are made by banks at the same time;
although, the prime rate does not adjust on any regular basis. The Prime Rate
is usually adjusted at the same time and in correlation to the adjustments of
the Fed Funds Rate. The rates reported below are based upon the prime rates on
the first day of each respective month. Some banks use the name "Reference
Rate" or "Base Lending Rate" to refer to their Prime Lending
Rate.
31. What is Deposit Rate?
A: Interest Rates paid by a depository institution on the cash
on deposit.
32. What is FII?
A: FII (Foreign Institutional Investor) used to denote an
investor, mostly in the form of an institution. An institution established
outside India, which proposes to invest in Indian market, in other words buying
Indian stocks. FII's generally buy in large volumes which has an impact on the
stock markets. Institutional Investors includes pension funds, mutual funds,
Insurance Companies, Banks, etc.
33. What is FDI?
A: FDI (Foreign Direct Investment) occurs with the
purchase of the “physical assets or a significant amount of ownership (stock)
of a company in another country in order to gain a measure of management
control” (Or) A foreign company having a stake in a Indian Company.
34. What is IPO?
A: IPO is Initial Public Offering. This is the first
offering of shares to the general public from a company wishes to list on the
stock exchanges.
35. What is Disinvestment?
A: The Selling of the government stake in public sector
undertakings.
36. What is Fiscal Deficit AND Revenue deficit?
A: It is the difference between the government’s total
receipts (excluding borrowings) and total expenditure.
Revenue deficit defines that, where the net amount
received (by taxes & other forms) fails to meet the predicted net amount to
be received by the government.
37. What is GDP,GNP,Per Capita Income AND National
Income?
A: The Gross Domestic Product or GDP is a measure of all
of the services and goods produced in a country over a specific period;
classically a year. GDP during 2008-09 is 6.7%.
Gross National Product is measured as GDP plus income of
residents from investments made abroad minus income earned by foreigners in
domestic market.
National Income is the money value of all goods and services
produced in a country during the year.
The national income of a country, or region, divided by
its population. Per capita income is often used to measure a country's standard
of living.Per capita income during 2008-09 estimated by CSO: Rs.25, 494.
Indicators of Growth
Gross Domestic Product (GDP): It is the
sum total of the market value of the final goods and services produced within
the geographical boundary of a country during an accounting year.
Gross National Product (GNP): GNP = GDP
+ Net factor income from abroad.
Net factor income = X – M, [X = Income earned and received
by nationals in foreign countries; M=Income earned by foreign nationals in a
country.]
It better indicates the production potential of the
nationals as against GDP. In India’s case, GNP is less than
GDP. In other words, net factor income is negative in India.
Net National Product (NNP): NNP = GNP –
Depreciation
Depreciation is consumption of fixed capital in the
process of production.
National Income: When NNP is calculated
at factor cost, it is known as National Income. In other words, it can be
represented as,
National Income = NNP at market prices – Indirect taxes +
subsidies
38. What is Vote on Account?
A: A vote-on account is basically a statement ,where the
government presents an estimate of a sum required to meet the expenditure that
it incurs during the first three to four months of an election financial year
until a new government is in place, to keep the machinery running.
39. Difference between Vote on Account and Interim
Budget?
A:Vote-on-account deals only with the expenditure side of
the government's budget, an interim Budget is a complete set of accounts,
including both expenditure and receipts.
40. What is SDR?
A: The SDR (Special Drawing Rights) is an artificial
currency created by the IMF in 1969. SDRs are allocated to member countries and
can be fully converted into international currencies so they serve as a
supplement to the official foreign reserves of member countries. Its value is
based on a basket of key international currencies (U.S. dollar, euro, yen and
pound sterling).
41. What is SEZ?
A: SEZ means Special Economic Zone is the one of the part
of government’s policies in India. A special Economic zone is a geographical
region that economic laws which are more liberal than the usual economic laws
in the country. The basic motto behind this is to increase foreign investment,
development of infrastructure, job opportunities and increase the income level
of the people.
42. What is corporate governance?
The way in which a company is governed and how it deals with the
various interests of its customers, shareholders, employees and society at
large. Corporate governance is the set of processes, customs, policies, laws,
and institutions affecting the way a corporation (or company) is directed,
administered or controlled.Is defined as the general set of customs,
regulations, habits, and laws that determine to what end a firm should be run.
43. Functions of RBI?
A. The Reserve Bank of India is the central bank of India, was
established on April 1, 1935 in accordance with the provisions of the Reserve
Bank of India Act, 1934. The Reserve Bank of India was set up on the
recommendations of the Hilton Young Commission. The commission submitted its
report in the year 1926, though the bank was not set up for nine years.To
regulate the issue of Bank Notes and keeping of reserves with a view to
securing monetary stability in India and generally to operate the currency and
credit system of the country to its advantage." Banker to the Government:
performs merchant banking function for the central and the state governments;
also acts as their banker.Banker to banks: maintains banking accounts of all
scheduled banks
44. What is monetary policy?
A Monetary policy is the process by which the government,
central bank, of a country controls (i) the supply of money, (ii) availability
of money, and (iii) cost of money or rate of interest, in order to attain a set
of objectives oriented towards the growth and stability of the economy.
45. What is Fiscal Policy?
Fiscal policy is the use of government spending and revenue
collection to influence the economy. These policies affect tax rates, interest
rates and government spending, in an effort to control the economy. Fiscal
policy is an additional method to determine public revenue and public
expenditure.
46. What is Core Banking Solutions?
Core banking is a general term used to describe the
services provided by a group of networked bank branches. Bank customers may
access their funds and other simple transactions from any of the member branch
offices. It will cut down time, working simultaneously on different issues and
increasing efficiency. The platform where communication technology and
information technology are merged to suit core needs of banking is known as
Core Banking Solutions.
47. What is bank and its features and types?
A bank is a financial organization where people deposit
their money to keep it safe.Banks play an important role in the financial
system and the economy. As a key component of the financial system, banks
allocate funds from savers to borrowers in an efficient manner.
49.
Regional Rural Banks were established with an objective to ensure
sufficientinstitutional credit for agriculture and other rural sectors. The
RRBs mobilizefinancial resources from rural / semi-urban areas and grant loans
and advancesmostly to small and marginal farmers, agricultural labourers and
rural artisans.The area of operation of RRBs is limited to the area as notified
by GoI coveringone or more districts in the State.
Banking services for individual customers is known as retail
banking
A bank that deals mostly in but international finance, long-term
loans for companies and underwriting. Merchant banks do not provide
regular banking services to the general publicOnline banking (or Internet
banking) allows customers to conduct financialtransactions on a secure website
operated by their retail or virtual bank.Mobile Banking is a service that
allows you to do banking transactions on yourmobile phone without making a call
, using the SMS facility. Is a term used for performing balance checks, account
transactions, payments etc. via a mobile device such as a mobile phone.
Traditional banking is the normal bank accounts we have. Like, put your money
in the bank and they act as a security and you will get only the normal
interests (decided by RBI in our case, FED bank in US).Investment banking is
entirely different. Here, people who are having so much money (money in excess
which will yield only less interest if in Banks) will invest their money and
get higher returns. For example, If i have more money instead of taking the
pain of investing in share market, buying properties etc. I will give to
investment banks and they will do the money management and give me higher
returns when compared to traditional banks.
48. What is E-Governance?
E-Governance is the public sector’s use of information and
communication technologies with the aim of improving information and service
delivery, encouraging citizen participation in the decision-making process and
making government more accountable,transparent and effective.
49. What is Right to information Act?
The Right to Information act is a law enacted by the
Parliament of India giving citizens of India access to records of the Central
Government and State overnments.The Act applies to all States and Union
Territories of India, except the State of Jammu and Kashmir - which is covered
under a State-level law. This law was passed by Parliament on 15 June 2005 and
came fully into force on 13 October 2005.
50. Credit Rating Agencies in India?
The credit rating agencies in India mainly include ICRA
and CRISIL. ICRA wasformerly referred to the Investment Information and Credit
Rating Agency of India Limited. Their main function is to grade the different
sector and companies in terms of performance and offer solutions for up
gradation. The credit rating agencies in India mainly include ICRA and
CRISIL(Credit Rating Information Services of India Limited)
51. What is demand Draft?
A demand draft is an instrument used for effecting
transfer of money. It is a Negotiable Instrument. Cheque and Demand-Draft both
are used for Transfer of money. You can 100% trust a DD. It is a banker's
check. A check may be dishonored for lack of funds a DD can not. Cheque is
written by an individual and Demand draft is issued by a bank. People believe
banks more than individuals.
52. What is a NBFC?
A non-banking financial company (NBFC) is a company
registered under the Companies Act, 1956 and is engaged in the business of
loans and advances, acquisition of shares/stock/bonds/debentures/securities
issued by government, but does not include any institution whose principal
business is that of agriculture activity, industrial activity,
sale/purchase/construction of immovable property.NBFCs are doing functions akin
to that of banks; however there are a few differences:
(i)A NBFC cannot accept demand deposits (demand deposits are funds
deposited at a depository institution that are payable on demand -- immediately
or within a very short period -- like your current or savings accounts.)
(ii) it is not a part of the payment and settlement system and
as such cannot issue cheques to its customers; and
(iii) Deposit insurance facility of DICGC is not available for
NBFC depositors unlike in case of banks.
53. What is NASSCOM ?
The National Association of Software and Services
Companies (NASSCOM), the Indian chamber of commerce is a consortium that serves
as an interface to the Indian software industry and Indian BPO industry.
Maintaining close interaction with the Government of India in formulating
National IT policies with specific focus on IT software and services
maintaining a state of the art information database of IT software and services
related activities for use of both the software developers as well as
interested companies overseas.
54. What is ASSOCHAM?
The Associated Chambers of Commerce and Industry of India
(ASSOCHAM), India's premier apex chamber covers a membership of over 2 lakh
companies and professionals across the country. It was established in 1920 by
promoter chambers, representing all regions of India. As an apex industry body,
ASSOCHAM represents the interests of industry and trade, interfaces with
Government on policy issues and interacts with counterpart international
organizations to promote bilateral economic issues.
55. What is NABARD?
NABARD was established by an act of Parliament on 12 July 1982
to implement the National Bank for Agriculture and Rural Development Act 1981.
It replaced the Agricultural Credit Department (ACD) and Rural Planning and
Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and
Development Corporation (ARDC). It is one of the premiere agency to provide
credit in rural areas. NABARD is set up as an apex Development Bank with a
mandate for facilitating credit flow for promotion and development of
agriculture, small-scale industries, cottage and village industries,
handicrafts and other rural crafts.
56. What is SIDBI?
The Small Industries Development Bank of India is a
state-run bank aimed to aid the growth and development of micro, small and
medium scale industries in India. Set up in 1990 through an act of parliament,
it was incorporated initially as a wholly owned subsidiary of Industrial
Development Bank of India.
57. What is SENSEX and NIFTY?
SENSEX is the short term for the words "Sensitive
Index" and is associated with the Bombay (Mumbai) Stock Exchange (BSE).
The SENSEX was first formed on 1-1-1986 and used the market capitalization of
the 30 most traded stocks of BSE. Where as NSE has 50 most traded stocks of
NSE.SENSEX IS THE INDEX OF BSE. AND NIFTY IS THE INDEX OF NSE.BOTH WILL SHOW
DAILY TRADING MARKS. Sensex and Nifty both are an "index”. An index is
basically an indicator it indicates whether most of the stocks have gone up or
most of the stocks have gone down.
58. What is SEBI?
SEBI is the regulator for the Securities Market in India.
Originally set up by the Government of India in 1988, it acquired statutory
form in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Chaired
by C B Bhave.
59. What is Mutual funds?
Mutual funds are investment companies that pool money from
investors at large and offer to sell and buy back its shares on a continuous
basis and use the capital thus raised to invest in securities of different companies.
The mutual fund will have a fund manager that trades the pooled money on a
regular basis. The net proceeds or losses are then typically distributed to the
investors annually.
60. What is Asset Management Companies?
A company that invests its clients' pooled fund into
securities that match its declared financial objectives. Asset management
companies provide investors with more diversification and investing options
than they would have by themselves. Mutual funds, hedge funds and pension plans
are all run by asset management companies. These companies earn income by
charging service fees to their clients.
61. What are non-perfoming assets?
Non-performing assets, also called non-performing loans,
are loans,made by a bank or finance company, on which repayments or interest
payments are not being made on time. A debt obligation where the borrower has
not paid any previously agreed upon interest and principal repayments to the
designated lender for an extended period of time. The nonperforming asset is
therefore not yielding any income to the lender in the form of principal and
interest payments.
62. What is foreign exchange reservers?
Foreign exchange reserves (also called Forex reserves) in
a strict sense are only the foreign currency deposits and bonds held by central
banks and monetary authorities.However, the term in popular usage commonly
includes foreign exchange and gold,SDRs and IMF reserve positions.
63. What is Open Market operations(OMO)?
The buying and selling of government securities in the
open market in order to expand or contract the amount of money in the banking
system by RBI. Open market operations are the principal tools of monetary
policy.
64. What is Micro Credit?
It is a term used to extend small loans to very poor
people for self-employment projects that generate income, allowing them to care
for themselves and their families.
65. What is Liquidity Adjustment Facility(LAF)?
A tool used in monetary policy that allows banks to borrow
money through repurchase agreements. This arrangement allows banks to respond
to liquidity pressures and is used by governments to assure basic stability in
the financial markets.
66. What is Bancassurance?
It is the term used to describe the partnership or
relationship between a bank and an insurance company whereby the insurance
company uses the bank sales channel in order to sell insurance products.
67. What is Wholesale Price Index AND Consumer price
Index(CPI) ?
The Wholesale Price Index (WPI) is the index used to measure the
changes in the average price level of goods traded in wholesale market. A total
of 676 commodity prices make up the index. It is available on a weekly basis.
It is generally taken as an indicator of the inflation rate in the Indian
economy. The Indian Wholesale Price Index (WPI) was first published in 1902,
and was used by policy makers until it was replaced by the Producer Price Index
(PPI) in 1978.
CPI: It is a measure estimating the average price of consumer
goods and services purchased by households.
68. What is Venture Capital?
Venture capital is money provided by an outside investor to
finance a new, growing, or troubled business. The venture capitalist provides
the funding knowing that there’s a significant risk associated with the
company’s future profits and cash flow. Capital is invested in exchange for an
equity stake in the business rather than given as a loan, and the investor
hopes the investment will yield a better-than-average return.
69. What is a Treasury Bills?
Treasury Bills (T-Bills) are short term, Rupee denominated
obligations issued by the Reserve Bank of India (RBI) on behalf of the
Government of India. They are thus useful in managing short-term liquidity. At
present, the Government of India issues three types of treasury bills through
auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills
issued by State Governments.
70. What is Banking Ombudsmen Scheme?
The Banking Ombudsman Scheme enables an expeditious and
inexpensive forum to bank customers for resolution of complaints relating to
certain services rendered by banks.The Banking Ombudsman is a senior official
appointed by the Reserve Bank of India to redress customer complaints against
deficiency in certain banking services.The Banking Ombudsman Scheme was first
introduced in India in 1995, and was revised in 2002. The current scheme became
operative from the 1 January 2006, and replaced and superseded the banking
Ombudsman Scheme 2002.
71. What is Subsidy?
A subsidy is a form of financial assistance paid to a
business or economic sector. Most subsidies are made by the government to
producers or distributors in an industry to prevent the decline of that
industry or an increase in the prices of its products or to encourage it to
hire more labor.
72. What is a Debenture? How many types of debentures are
there? What are they?
A debenture is basically an unsecured loan to a
corporation. A type of debt instrument that is not secured by physical asset.
Debentures are backed only by the general creditworthiness and reputation of
the issuer.
i)Convertible Debentures: Any type of debenture
that can be converted into some other security or it can be converted into
stock..
ii)Non-Convertibility Debentures(NCB): Non
Convertible Debentures are those that cannot be converted into equity shares of
the issuing company, as opposed to Convertible debentures. Non-convertible
debentures normally earn a higher interest rate than convertible debentures do.
73. What is a hedge fund?
‘Hedge’ means to reduce financial risk. A hedge fund is an
investment fund open to a limited range of investors and requires a very large
initial minimum investment. It is important to note that hedging is actually
the practice of attempting to reduce risk, but the goal of most hedge funds is
to maximize return on investment.
74. What is FCCB?
A Foreign Currency Convertible Bond (FCCB) is a type of
convertible bond issued in a currency different than the issuer’s domestic
currency. In other words, the money being raised by the issuing company is in
the form of a foreign currency. A company may issue an FCCB if it intends to
make a large investment in a country using that foreign currency.
75. What is Capital Account Convertibility(CAC)?
It is the freedom to convert local financial assets into
foreign financial assets and vice versa at market determined rates of exchange.
This means that capital account convertibility allows anyone to freely move
from local currency into foreign currency and back.The Reserve Bank of India
has appointed a committee to set out the framework for fuller Capital Account
Convertibility.Capital account convertibility is considered to be one of the
major features of a developed economy. It helps attract foreign investment.
capital account convertibility makes it easier for domestic companies to tap
foreign markets.
76. What is Current Account Convertibility?
It defines at one can import and export goods or receive
or make payments for services rendered. However, investments and borrowings are
restricted.
77. What is Arbitrage?
The opportunity to buy an asset at a low price then
immediately selling it on a different market for a higher price.
78. What is Capitalism AND Socialism??
Capitalism as an economy is based on a democratic
political ideology and produces a free market economy, where businesses are
privately owned and operated for profit; in capitalism, all of the capital
investments and decisions about production, distribution, and the prices of
goods, services, and labor, are determined in the free market and affected by
the forces of supply and demand.
Socialism as an economy is based on a collectivist type of
political ideology and involves the running of businesses to benefit the common
good of a vast majority of people rather than of a small upper class segment of
society.
79. Types of Banks in India -
What is a Bank?
A Bank is a financial organization which accepts deposits that
can be withdrawn on
demand and also lends money to individuals and business houses
that need it.
Structure of banking sector in India:
What is RBI?
The RBI is India's central bank. The Reserve Bank of India was
established on April 1, 1935 in accordance with the provisions of the Reserve
Bank of India Act, 1934.
RBI acts as a banker to the Government and Banks.
The Central Bank maintains record of Government revenue and
expenditure under various heads. It maintains deposit accounts of all other
banks and advances money to other banks, when needed.
Another important function of the Central Bank is the issuance
of currency notes, regulating their circulation in the country by different
methods.
Scheduled Bank?
All banks which are included in the Second Schedule to the
Reserve Bank of India Act, 1934 are scheduled banks.
These banks comprise Scheduled Commercial Banks and Scheduled
Cooperative Banks. The type of banks comes under these Scheduled Commercial
Banks and Scheduled Cooperative Banks can be seen in the above figure.
All most all banks are Scheduled banks in India.
Commercial Banks?
Commercial banks may be defined as, any banking organization that
deals with the deposits and loans of business organizations
Commercial banks issue bank checks and drafts, as well as accept
money on term deposits. Commercial banks also act as moneylenders, by way
of installment loans and overdrafts.
Commercial banks also allow for a variety of deposit accounts,
such as checking, savings, and time deposit. These institutions are run to make
a profit and owned by a group of individuals.
Types of Loans offered by Commercial banks:
1)Secured Loan: A secured loan is one where the borrower
provides a certain property or asset as collateral against the loan. The main
condition of these loans is that if the loan remains unpaid, the bank has the
right to use the property in any way they like to realize the outstanding amount.
2)Unsecured Loan: Unsecured loans have no collateral and
therefore command higher interest rates. There are a variety of unsecured loans
available today and these include credit cars, credit facilities such as a
lines of credit, corporate bonds, and bank overdrafts.
3)Mortgage Loans: Mortgage loans that are provided by commercial
banks are similar to secured loans but are used specifically to buy real estate
property for commercial purposes. In most of these cases, the banks hold a lien
on the title to the particular property purchased with the loan. If the
borrower is unable to pay the loan back, the bank leverages this item against
the loan to generate funds or recover the principal.
Public Sector Banks?
These are banks where majority stake is held by the Government
of India.
Examples of public sector banks are: SBI, Bank of India, Canara
Bank, etc.
Private Sector Banks?
These are banks majority of share capital of the bank is held by
private individuals. These banks are registered as companies with limited
liability.
Examples of private sector banks are: ICICI Bank, Axis bank,
HDFC, etc.
Foreign Banks?
These banks are registered and have their headquarters in a
foreign country but operate their branches in our country.
Examples of foreign banks in India are: HSBC, Citibank, Standard
Chartered Bank, etc.
Regional Rural Banks?
Regional Rural Banks were established under the provisions of an
Ordinance promulgated on the 26th September 1975 and the RRB Act, 1976 with an
objective to ensure sufficient institutional credit for agriculture and other
rural sectors. The area of operation of RRBs is limited to the area as notified
by GoI covering one or more districts in the State.
RRBs are jointly owned by GoI, the concerned State Government
and Sponsor Banks (27 scheduled commercial banks and one State Cooperative
Bank); the issued capital of a RRB is shared by the owners in the proportion of
50%, 15% and 35% respectively.
Prathama bank is the first Regional Rural Bank in India located
in the city Moradabad in Uttar Pradesh.
Cooperative Banks?
A co-operative bank is a financial entity which belongs to its
members, who are at the same time the owners and the customers of their bank.
Co-operative banks are often created by persons belonging to the same local or
professional community or sharing a common interest. Co-operative banks
generally provide their members with a wide range of banking and financial
services (loans, deposits, banking accounts, etc).
They provide limited banking products and are specialists in
agriculture-related products.
Cooperative banks are the primary financiers of agricultural
activities, some small-scale industries and self-employed workers.
Co-operative banks function on the basis of "no-profit
no-loss".
Anyonya Co-operative Bank Limited (ACBL) is the first
co-operative bank in India located in the city of Vadodara in Gujarat.
How Bank gets Money?
Banks make money by lending your money out at interest and by
charging you for services provided. Banks keep on lending money.
The other big revenue items generated by banks are the fees they
charge. Bank charge for every service, whether it is for an electronic
transaction, or permitting a transfer through the Internet banking system.
When banks get profits they invest in other companies and in
return they will get money
80. Diff between banking & Finance?
A. Finance is generally related to all types of financial, this
could be accounting, insurances and policies. Whereas banking is everything
that happens in a bank only.The term Banking and Finance are two very different
terms but are often associated together. These two terms are often used to
denote services that a bank and other financial institutions provide to its
customers.
81. Who are forensic accountants?
Forensic accountants are trained to detect evidence of
frauds in financial statements. They go beyond the numbers and attempt to
analyze 100% of the data as against the sampling procedure adopted by auditors.
When the extended procedures are invoked, cases like the overvaluation of the
sales or the debtors become easy to investigate. In India there is an
urgentneed of large number of forensic accountants in view of the preponderance
of corporate frauds.
82. What do you mean by Financial Inclusion?
Financial inclusion means providing to the large unbanked
population of India access to financial products and services like:Bank
accounts, immediate credit, savings products, remittance and payment services,
insurance, mortgage, entrepreneurial credit, financial advisory services.Steps
taken so far for promotion of financial inclusion have been – the cooperative
movement, setting up of State Bank of India, nationalization of banks, lead
bank scheme, regional rural banks, service area approach, self help groups.Out
of 611 districts in the country, only 68 districts have been covered by so
called financial inclusion (as of July 2009).
83. What do you mean by Capital adequacy ratio?
CRAR is the acronym for capital to risk weighted assets ratio, a
standard metric to measure balance sheet strength of banks.BASEL I and BASEL II
are global capital adequacy rules that prescribe a minimum amount of capital a
bank has to hold given the size of its risk weighted assets. The old rules
mandate banks to back every Rs. 100 of commercial loans with Rs. 9 of capital
irrespective of the nature of these loans. The new rules suggest the amount of
capital needed depends on the credit rating of the customer.
84. What are Banking Codes and Standards Board of India
BCSBI?
BCSBI is an independent and autonomous body set up by RBI to
ensure that comprehensive code of conduct for fair treatment of customers was
evolved and adhered to. In substance the board has been set up to ensure that
the common consumer of banking services is in no way in a disadvantageous
position and really gets what he has been promised by the banks.Member banks of
the board have voluntarily agreed to abide by the provisions enumerated in the
codes which have been drawn up for the benefit of customers. These are:Code of
Bank’s Commitment to Customers, andCode of Bank’s Commitment to Micro and Small
Enterprises.
85. Overseas Banking Units (OBUs): The exim policy 2002-07
permitted registered Indian Banks to set up OBUs in the SEZs. Through these
OBUs exporters in SEZs will have access to finances at international costs.
This is because OBUs would be exempted from CRR, SLR and priority sector
lending requirements which would permit them to operate at par with their
overseas branches. These units have been permitted to accept funds from NRIs
and individuals and so they can raise foreign currency funds from international
markets at global interest rate. These banks should have a minimum capital of
$10 million, to set up OBUs. Recently SBI opened the first OBU in Mumbai.
86.MICR: Magnetic ink char acter recognition
What is it: MICR code (pronounced my-ker) is a nine-digit number
printed on banking instruments such as a cheque or a demand draft using a
special type of ink made of magnetic material. The first three digits denote
the city. The fourth to sixth digits denote the bank, while the last three
digits denote the branch number. The code is read by a machine, minimizing the
chances of error in clearing of cheques, thereby making funds transfer faster.
For example, in the MICR code 400240019, 400 denotes Mumbai, 240 denotes HDFC
Bank Ltd and 019 denotes the Colaba branch of the bank.
You will find the number on the right of the cheque number at
the bottom of the cheque leaf.
When do you need it: MICR code allows money to drop
directly into your bank account for payments such as salaries and dividends.
Your tax refund will come to you faster if you remember to mention this on the
refund form. Refunds of unwanted money in initial public offers, too, drop back
if you put down your code on the application form.
87. IFSC: India financial system code
What is it: An 11-digit alphanumeric (letters and numbers) code that
helps identify bank branches. The first four numbers represent the bank’s code
(alphabetic), the fifth number is a control character (0), and the next six
numbers denote a bank branch. For example, the IFSC for HDFC Bank Ltd’s Colaba
branch in Mumbai reads as HDFC0000085. This code is mentioned on your cheque.
Different banks mention it at different places on the cheque.
When do you need it: When sending money through RTGS or
NEFT, you need to know the IFSC of the receiving branch.
CVV: Card verification value
What is it: CVV is an anti-fraud security feature that helps verify
that you are in possession of your credit card and making the transaction. CVV
is usually a three-digit number printed on the signature panel at the back of
your credit card.
When do you need it: You need this number when shopping
online or over the phone. You need to be careful with this number as it can
make you a victim of fraud. It’s best to remember this number and blacken it
off from your card.
PAP: Payable at par or MCC: Multi-city cheques
What is it: PAP or MCC cheques can be encashed anywhere in India,
irrespective of the city they were issued in. They are treated as local
clearing cheques across the country. The amount is credited in the account the
same day and there are no inter-city collection charges associated with a
normal cheques being encashed in another city.
A cheque issued at a branch in Chennai, can be encashed at a
branch in Dibrugarh as if it were a local cheque.
There would be a notation on the top or the bottom of a cheque
indicating its status as as PAP or MCC cheque.
When do you need it: By issuing a PAP or MCC cheque, you can save demand
draft or cheque clearing costs.
Usually, these cheques are issued by companies to disburse
dividends or redemption amounts.
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