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Debunking Finance with RABBIT
Bank Rate
- The bank rate is the interest rate at which a country's central bank provides loans to domestic commercial banks. This loan can be obtained without any security or collateral.
- Bank rate remains an essential tool for the Central Bank of the country to control money supply in the economy. The Central Bank authority can increase or decrease the bank rate which in turn can lead to a domino effect.
- Let’s understand this with an example. If the Central Bank increases the bank rate, it would mean that the cost of obtaining a loan for a commercial bank would increase. As a result, the commercial bank would have to increase the lending rates, making loans expensive for the customer. This acts as a measure to control the money flow into the economy.
Bullish and Bearish Market
Financial markets are dynamic environments where the prices of securities fluctuate based on a complex interplay of economic factors, investor sentiment, and geopolitical events. Two key terms frequently used to describe these market conditions are "bullish" and "bearish." Understanding these market phrases is essential as they shape investment strategies, portfolio management decisions, and broader economic outlook.
Demat Account
- Dematerialised Account, also known as Demat Account, is an electronic account used to hold and trade securities in a paperless, digital format. It replaces the traditional method of holding physical share certificates with an electronic record of securities.
- Demat accounts were introduced in India in 1996 as a part of the process of modernising the Indian capital markets. Since their introduction, Demat accounts have significantly streamlined the process of buying, selling, and holding securities, benefiting investors and market participants alike by reducing transaction costs, eliminating paperwork, and enhancing market transparency.
- Opening a Demat account is a prerequisite for trading in stocks and securities on Indian stock exchanges like the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). It is typically operated through registered Depository Participants (DPs), who act as intermediaries between investors and depositories such as the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
GDP
- GDP, known as Gross Domestic Product, is the monetary value of final goods and services produced in a country within a specific time frame, such as a quarter or a year. This metric offers an economic snapshot of a country, estimating the size and growth rate.
- GDP includes all output generated within the country's borders, encompassing both market-based goods and services and some non-market production, like government-provided defence and education services. However, not all productive activities are counted in GDP, like unpaid work (such as household chores or volunteer services) and black-market activities.
International Trade
Countries produce goods based on the available resources and the cost of production. When a country cannot produce a specific good but desires it, they can purchase it from other countries that manufactures that particular good. As a result, countries participate in international trade to achieve mutual benefits through cooperation and voluntary exchange of goods and services. Imports refer to goods brought in from foreign countries, while exports are products produced domestically and sold abroad.
Taxes
Indirect taxes
- Indirect taxes are levied on goods and services and are hence, indirectly levied on individuals. The supplier or manufacturer of these goods and services collects the tax and then pays it to the government. Indirect taxes can be transferable in nature. Indirect tax is regressive, meaning it is applied uniformly regardless of individuals' income levels. Examples include Excise Tax, GST, VAT.
Direct taxes
- Direct taxes are directly levied on an individual’s income and profits. It is paid to the government by the person responsible for the tax burden, without being passed on to another party. Direct tax is a progressive tax, meaning the tax burden rises with income. In other words, individuals with higher incomes pay a larger proportion of taxes, while those with lower incomes have a smaller tax burden. Examples of direct taxes include Income Tax, Corporate Tax, Property Tax.
Other popular Finance Terms
Asset
Credit Card
Liabilities
An asset is anything of value that is owned by an individual, company, or an institution, which can be converted into cash. Assets can include physical objects, such as real estate, vehicles, or machinery, as well as intangible items like patents, trademarks, and goodwill. In financial terms, assets are typically categorised as either current assets (short-term assets that can be converted into cash within one year) or non-current assets (long-term assets expected to provide economic benefits beyond one year).
Liabilities
Credit Card
Liabilities
Liabilities are financial obligations or debts that a person, company, or institution owes to others. They represent claims against assets. Liabilities can be classified into two main categories, Current Liabilities (obligations that are expected to be settled within one year) and Non-current Liabilities (obligations that are not expected to be settled within one year).
Credit Card
Credit Card
Credit Card
A credit card is a financial instrument issued by banks or financial institutions that allows cardholders to borrow funds to pay for goods and services. The cardholder is obligated to repay the borrowed amount, typically with interest, based on the credit card's terms and conditions. Credit cards offer a convenient and flexible way to manage short-term credit needs and are widely accepted for transactions both online and in physical stores.
Debit Card
Debit Card
Credit Card
A debit card is a payment card issued by a bank or financial institution that allows the cardholder to access funds directly from their bank account to make purchases, withdraw cash, or conduct other financial transactions. Unlike a credit card, which allows the user to borrow money up to a certain limit, a debit card uses the money already available in the user’s bank account.
Loans
Debit Card
Collateral
It is a financial arrangement in which a lender provides money to a borrower with the expectation that the borrower will repay the borrowed amount, typically along with interest, over an agreed period. Loans can be used for various purposes, including purchasing a home, financing a car, funding education, or supporting a business.
Collateral
Debit Card
Collateral
It is an asset or property that a borrower offers to a lender as security for a loan. In the event that the borrower defaults on the loan, the lender has the right to seize and sell the collateral to recover the outstanding loan amount. Collateral reduces the risk for lenders and can help borrowers obtain loans at more favorable terms.