QA Series 51 - General Part 3

 

The Banking Tutor

Question Answer Series 2025

S No 51                                                                  30-08-2025

General – Part 3 

49. What is Annual Percentage Rate (APR) ? 

 Annual Percentage Rate (APR) refers to the yearly interest generated by a sum that's charged to borrowers or paid to investors.  Annual Percentage Yield (APY) is the real rate of return earned on an investment, taking into account the effect of compounding interest. APR reflects the simple interest rate over a year’s time, while APY describes the rate with the effect of compounding, or the interest on interest. 

50. What is Forensic Audit? 

A forensic audit is an analysis and review of the financial records of a company or person to extract facts, which can be used in a court of law. 

51. What is RBI’s Retail Direct Scheme? 

RBI Retail Direct Scheme has been launched on November 12, 2021 for providing one stop access to facilitate investment in Government Securities by retail investors. Under this scheme Individual Retail investors can open Gilt Securities Account – “Retail Direct Gilt (RDG)” Account with the RBI. Retail investors would mean all individuals (natural persons). 

52. What is Banking 4.0 ? 

Banking 4.0 is a term that describes the future of banking, which is expected to be characterized by embedded banking, real-time experiences, and the use of technology. 

53. What is Quantitative Easing ? 

When an economy is under stress and faces liquidity crunch, the central banks step in and buy bonds to induce liquidity into the economy. Basically, it increases money supply in the economy by buying out bonds in exchange for cash. This is called ‘Quantitative Easing’ (QE). 

54. What is Tapering? 

Once the economy showed signs of healing, the Government may gradually stop further infusion of money. Such gradual withdrawal or winding up stimulus packages is called Taper. Thus, "Tapering" refers to a central bank's strategy of winding up a quantitative easing programme used to purchase government debt and other assets to keep borrowing costs low. 

55. What is Taper Tantrum? 

A taper tantrum refers to the movement in bond yields caused by investor reactions to a central bank announcing future tapering of bond-buying programs. Even if the central bank does not stop purchasing bonds immediately, investors may sell off their bonds, which forces yields to rise. These sales are said to be a “tantrum” in reaction to the news of a tapering. 

56. What is Prompt Corrective Action? 

Prompt Corrective Action (PCA) is a framework under which banks with weak financial metrics are put under watch by the RBI.

57. What is Capital Flight? 

Capital flight refers to the amounts of foreign currency assets that have been kept in foreign countries by Indian citizens or corporate bodies without legal sanction for doing so. It is held that, such amounts increase year after year because of the continuous capital flight. 

58. What is a Google Tax ? 

A Google tax, also known as a Diverted Profits Tax, refers to anti-avoidance tax provisions that have been introduced in several jurisdictions to deal with the practice of profits or royalties being diverted to other jurisdictions that have lower or zero tax rates. 

59. What is the Base Effect? 

The Base Effect relates to inflation in the corresponding period of the previous year. If the inflation rate was too low in the corresponding period of the previous year, even a smaller rise in the Price Index will arithmetically give a high rate of inflation now. On the other hand, if the price index had risen at a high rate in the corresponding period of the previous year and recorded high inflation rate, a similar absolute increase in the price index now will show a lower inflation rate now. 

60. What is a Social Stock Exchange? 

A Social Stock Exchange (SSE) allows the listing of a Non-Profit Organization on stock exchanges that provide an alternative fund-raising structure. 

61. What is Open Inflation? 

Open Inflation is the simplest form of inflation where the price level rises continuously and is visible to people. 

62. What is meant by Repression of Inflation? 

When the Government take some repressive measures like price control, rationing, etc. to prevent the excess demand from increasing the prices, such situation is called Repressed Inflation. 

63. What is meant by Built-in Inflation? 

Expectation of future inflations results in Built-in Inflation. A rise in prices results in higher wages to afford the increased cost of living. Therefore, high wages result in increased cost of production, which in turn has an impact on product pricing. The circle hence continues. 

64.  What is Skewflation? 

Skewflation means the skewness of inflation among different sectors of the economy — some sectors are facing huge inflation, some none and some deflation. 

65. What is Imported Inflation? 

Increase in the prices of imported goods like crude, coal etc., can produce domestic inflation. this is called imported inflation. 

66. What is Headline Inflation? 

Headline inflation is the inflation figure that we can observe from consumer price index of wholesale price index. If the CPI inflation shows 4% during the last month, this 4% is the headline inflation. 

67. What is Stagnation? 

Stagnation is a prolonged period of little or no growth in an economy. Real economic growth of less than 2% annually is considered stagnation, and it is highlighted by periods of high unemployment and involuntary part-time employment. 

68. What is Stagflation? 

Stagflation is a hybrid of inflation and stagnation. Stagnation is very low economic growth. Usually inflation is accompanied growth of the economy. In this sense, stagflation is a paradoxical situation. Since both inflation and stagnation are undesirable economic conditions, stagflation is double pain for the economy.

69. What is Ratchet Effect? 

Ratchet effect is a price/wage situation where prices or wages goes upwards only and can’t be reversed or reduced. 

70. What is CBDC? 

Central Bank Digital Currency (CBDC) is a digital form of currency notes issued by a central bank. 

71. What are Depositories? 

Depositories are entities that hold financial securities such as stocks in dematerialised form. Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL) are the two depositories in India. 

72.  What is a Freelance economy? 

Freelance economy refers to a labour market consisting of a number of short-term contracts. 

73. What is a Swingline Debt facility? 

A type of lending facility that can be used to cater to the debt repayments in full or partial is termed as a Swingline debt facility. 

74. What are NUEs ? 

New Umbrella Entities (NUEs) will be a non-profit entity that will set-up, manage, and operate new payment systems such as ATMs and white-label Point-of-Sale (POS) systems. It also includes Aadhaar-based payments and remittance services. 

75. What is Viability Gap Funding? 

Viability Gap Funding (VGF) is the grant provided to infrastructure projects that are economically feasible but fall short of financing.

76.  What is Negotiated Dealing System? 

The Negotiated Dealing System (NDS) is an electronic trading platform operated by the Reserve Bank of India (RBI) to facilitate the issuing and exchange of government securities and other types of money market instruments. 

77. What is a Dual Currency Bond? 

A dual currency bond is a kind of debt instrument where the coupon payment is denominated in one currency and the principal amount in another. This kind of bond can expose the holder to exchange rate risk. 

78. What is Impact Investing? 

Impact investing is an investment strategy that aims to generate specific beneficial social or environmental effects in addition to financial gains. 

79. What is an Information Utility? 

Information Utility is an institution with multiple objectives. To provide undisputed information for initiation of insolvency process. IU serves as a credit and contract Repository. Accept financial information from financial or operational creditors or debtors. 

80. What is NeSL? 

NeSL (National E-Governance Services Ltd) is India’s first Information Utility and is registered with the Insolvency and Bankruptcy Board of India (IBBI) under the aegis of the Insolvency and Bankruptcy Code, 2016 (IBC). 

81.  What is a Green Shoe Option? 

A Green Shoe option is an over-allotment option. In the context of an initial public offering (IPO), it is a provision in an underwriting agreement that grants the underwriter the right to sell investors more shares than initially planned by the issuer if the demand for a security issue proves higher than expected. 

82. What is Green Financing? 

Green financing is to increase level of financial flows to sustainable development priorities. 

83. What is Market Stabilisation Scheme? 

Market Stabilization scheme (MSS) is a monetary policy intervention by the RBI to withdraw excess liquidity (or money supply) by selling government securities in the economy. 

84. What is Sterilisation in the context of Monetary Economy? 

Withdrawal of excess liquidity is called sterilisation. 

85. What are Market Stabilisation Bonds? 

To carry out the Market Stabilization scheme (MSS) the government lends its bonds or securities known as  Market Stabilisation Bonds (MSBs) to the RBI. In this way, the RBI becomes a debtor to the government equal to the value of the MSBs. 

86. What are Provisions in the context of Balance Sheet? 

Provisions are the present obligation (probability of occurrence is more than 51%) arising out of past events. It is shown as a current liability on the liabilities side of the balance sheet and recorded as expenses in the income statement. 

87. What are Reserves in the context of Balance Sheet? 

Reserves are the amount kept aside from a company’s profits for specific purposes or unknown liability in the future, like buying a fixed asset, repayment of debentures, payment of dividends, etc., and also for general purposes as General Reserve. It is an appropriation of profit, and not a charge against profit. Reserves are a part of the owner’s capital/shareholder’s fund, and hence profit is not reduced by making any reserve. 

88. What is the difference between Reserve and Provision? 

A provision is a charge against profits to cover a known or probable liability or loss where the exact amount is uncertain, while a reserve is an appropriation of profits to strengthen financial position or fund future growth and is at management's discretion. 

89. What is NUUP? 

156. NUUP the acronym stands for National Unified USSD (Unstructured Supplementary Service Data) Platform introduced by National Payment Corporation of India for accessing Mobile Banking services by customers across various Telecom service providers. 

Sekhar Pariti

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