Important Banking Terminologies

Important Banking Terminologies

Today we are going to learn about important banking terminologies. Those are the terminologies that every individual should know while dealing with the banking & finance sector this will also help you different competitive exams.

What are soiled, mutilated and imperfect banknotes?

Soiled Note – Note which has become dirty due to excess use also includes a two-piece note.
Mutilated Note – Notes which are cut into more than two pieces or whose portion is missing.
Imperfect Note – Notes which are shrinked or washed or Altered.

What is Currency chest?
RBI for the purpose to facilitate the distribution of the banknotes & rupee coins, The RBI has authorized selected branches of scheduled banks to establish a currency chest.

These currency chests are nothing but the storehouses where banknotes & rupee coins are stocked on the behalf of RBI The vault which stores cash in the Currency chest belongs to RBI.

What are the types of Money?

Commodity Money – The value of the commodity money comes from the commodity of which it is made.
E.g. Gold, Silver, Grains, Salt and many other materials served as commodity money in different phases of history.

Fiat Money – Fiat money is physical money (paper money and coins) whose usefulness and value are backed by the government’s order.

Representative Money – Representative money is something that represents the intent to pay the money.
E.g. A personal check is backed by the money in a bank account.

What is Base Rate?

  • Base Rate is the minimum rate at which Commercial Bank can charge the customer for lending money to the customer.
  • It was introduced by RBI in 2010. later on, Changes were made for setting Base Rate
  • Nowadays Individual Bank’s Board decides the Base Rate
  • Individual Bank’s Board Has to follow guidelines given by the RBI for setting the Base Rate
  • This guideline Depends on MCLR i.e. (Marginal Cost of Fund Based Lending Rate).
  • MCLR was introduced in April 2016

What are LIBOR and MIBOR?

  • LIBOR – London Interbank Offered Rate
  • LIBOR is the average interest rate estimated by leading banks in London that they would be paying if they borrow from other banks
  • MIBOR- Mumbai Interbank Offered Rate
  • MIBOR is the interest rate at which banks can borrow funds, in marketable size, from other banks in the Indian interbank market. MIBOR is calculated every day by the National Stock Exchange of India (NSEIL) as a weighted average of lending rates of a group of banks, on funds lent to first-class borrowers.

What is call money, notice money & term money?

  • These refer to the markets for very short-term funds.
  • Under certain situations, banks fall short in the money to meet the customer demands under such conditions banks borrow money from the other financial entities to meet the demand
  • Scheduled commercial banks (excluding RRBs), co-operative banks and Primary Dealers (PDs), are permitted to participate in call/notice money market both as borrowers and lenders.
  • Call Money– Refers to the borrowing or lending of funds for 1 day.
  • Notice Money– Refers to the borrowing and lending of funds for 2-14 days.
  • Term money– Refers to borrowing and lending of funds for a period of more than 14 days

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