What is monetary policy?

A country’s central bank uses a set of instruments called monetary policy to regulate the total amount of money in circulation, foster economic expansion, and implement measures like adjusting interest rates and altering bank reserve requirements.

In the US, the federal reserve bank has a dual responsibility to pursue monetary policy that aims to maximise employment while controlling inflation

A KEY POINT

The goal of monetary policy is to manage a country’s overall financial situation.

  • Monetary policy techniques include modifying interest rates and altering bank reserve requirements in order to increase the money supply and promote economic growth.

    • Monetary policies are typically categorised as either expansionary or restrictive.
    • The Federal Reserve frequently employs the discount rate, open market operations, and reserve requirements as its three primary monetary policy tools.

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Knowledge of Monetary Policy

 

One of the two policies created for any economy is the monetary policy; the other is the fiscal policy. While the fiscal policy is focused on the government’s income and outlays, the monetary policy is concerned with the money supply and the rate of inflation in the economy.

 

 

RBI’s bimonthly monetary policy

 

The repo rate was left constant at 6.50 percent as part of the reserve bank of India’s bimonthly monetary policy announcement. In its first monetary policy announcement of the current fiscal year, governor Shaktikanta Das of the RBI announced that the Monetary Policy Committee (MPC) had unanimously opted to hold the repo rate at 6.50 percent. The economy is still robust, and real GDP growth in FY 22–23 was predicted to have been 7%. The governor of the RBI added that the repo rate hike and accommodation withdrawal had been put on hold solely for this meeting. The MPC’s subsequent meeting is slated for June 6–8, 2023.

Rate of RBI’s monetary policy

 

  • 6.50% Policy Repo Rate
  • 6.25% for the Standing Deposit Facility (SDF)
  • 6.75% is the marginal standing facility rate.
  • 6.75% bank rate
  • 3.35% Fixed Reverse Repo Rate
  • 4.50% Cash Reserve Ratio (CRR)
  • 18.00% is the Statutory Liquidity Ratio (SLR).

 

 

 

  • Repo Rate: The interest rate at which the Reserve Bank makes liquidity available to all LAF participants under the liquidity adjustment facility (LAF) in exchange for government and other approved securities as collateral.

 

  • Standing Deposit Facility (SDF) Rate: The rate at which all LAF participants’ overnight uncollateralized deposits are accepted by the Reserve Bank. In addition to its function in managing liquidity, the SDF also serves as a tool for financial stability. A 25 basis point spread separates the SDF rate from the policy repo rate.

 

When SDF was introduced in April 2022, the fixed reverse repo rate was replaced as the LAF corridor’s floor by the SDF rate.

 

  • Marginal Standing Facility (MSF) Rate: The punitive rate at which banks may borrow money from the Reserve Bank on an overnight basis by withdrawing funds up to a set (2%) amount from their Statutory Liquidity Ratio (SLR) portfolio. This gives the banking system a safety valve against unforeseen liquidity shocks. The policy repo rate is set at 25 basis points higher than the MSF rate.

 

  • Liquidity Adjustment Facility (LAF): The Reserve Bank’s procedures for adding to or removing liquidity from the banking system are referred to as LAF operations. It comprises of SDF, MSF, and term and overnight repo/reverse repos (fixed and variable rates). In addition to LAF, other mechanisms of liquidity management include market stabilisation schemes (MSS), FX swaps, and outright open market operations (OMOs).
  • LAF Corridor: The LAF corridor has the policy repo rate in the middle, with the marginal standing facility (MSF) rate as its upper bound (ceiling) and the standing deposit facility (SDF) rate as its lower bound (floor).
  • Main Liquidity Management Tool: The primary liquidity management tool for managing frictional liquidity requirements is a 14-day term repo/reverse repo auction operation at a variable rate done in conjunction with the cash reserve ratio (CRR) maintenance cycle.
  • Fine-tuning Operations: To smooth out any unanticipated variations in liquidity during the reserve maintenance period, the main liquidity operation is backed by fine-tuning operations, overnight and/or longer tenor. The Reserve Bank also holds longer-term variable rate repo/reverse repo auctions of more than 14 days as necessary.
  • Reverse Repo Rate: The interest rate at which the Reserve Bank purchases bank liquidity in exchange for qualified public securities as collateral under the LAF. The fixed rate reverse repo operations will be at the RBI’s discretion for purposes that will be periodically specified following the adoption of SDF.

The Reserve Bank’s willingness to purchase or rediscount bills of exchange or other commercial documents is known as the “bank rate.” When banks fall short of achieving their reserve requirements (cash reserve ratio and statutory liquidity ratio), a penalty rate known as the bank rate is applied. According to Section 49 of the RBI Act of 1934, the Bank Rate is publicised. This rate is automatically adjusted to match the MSF rate as well as

  • when changes in policy repo rates coincide with changes in MSF rates.

 

  • The Cash Reserve Ratio (CRR), which the Reserve Bank may occasionally notify in the Official Gazette, is the average daily balance that a bank is required to maintain with the Reserve Bank as a percentage of its net demand and time liabilities (NDTL) as of the last Friday of the second preceding fortnight.

Statutory Liquidity Ratio (SLR): Each bank must maintain in India assets, the value of which must not be less than such percentage of the total of its demand and time liabilities in India as of the last Friday of the second preceding fortnight, as specified from time to time by the Reserve Bank by notification in the Official Gazette.

  • Open Market Operations (OMOs): These include the Reserve Bank directly buying or selling government assets in order to inject or absorb long-term liquidity into the banking system.

 

 

Shri Shaktikanta Das is the Reserve Bank of India’s governor.

 

 

Vice-President of the Reserve Bank of India

  1. K. Jain, Shri

Michael D. Patra, M.D.

  1. Rajeswar Rao T. Rabi Sankar,

 

Director of the Reserve Bank of India

  1. P. Mall, D.O.

Rajiv Ranjan, M.D.

What is Share Market?

The stock market is a marketplace where buyers and sellers can transact on publicly traded shares at particular times of the day. People often use the terms , Share market and stock market are frequently used interchangeably. However, the main distinction between the two is that, Stock market enables you to trade a variety of financial products, such as bonds, derivatives, currencies, etc., the share market is only used to trade shares.

The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are the two main stock exchanges in India.

For better understanding we must go through Capital Market ,

both the topic share market and stock market come under ,Capital market.

Capital market

Savings and investments are transacted on capital markets between buyers and sellers of money who are both in need of funds. Individuals, businesses, and the government are the entities looking for capital, whereas retail and institutional investors are the entities with the capital.

Capital Markets want to make transactions more efficient. These are the markets that connect individuals with capital and those looking for capital to offer a suitable setting for the exchange of securities.

The stock market, bond market, currency market, and foreign exchange market are a few examples of capital markets.

capital market regulators
The Ministry of Finance of India oversees and regulates the capital markets. Therefore, the capital market is governed by both of India’s major regulatory bodies, namely the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).
The Department of Economic Affairs’ Capital Markets Division, under the Ministry of Finance, oversees the capital market.
The division is in charge of these things:
Securities market institutional changes
establishing market and regulatory institutions
enhancing the mechanism for investor protection
establishing effective regulatory frameworks for the securities markets

Structure of Capital Market
The segments of the capital market include:

Primary Market: Also referred to as the new issue market, it deals with new or recent offerings of securities.

sale of securities by new companies or additional (new offerings of securities to investors by existing companies).
Securities directly sold to the investor by the corporation.

Savings flow to investors, therefore the primary market actively encourages capital development.
In the main market, securities may only be bought; they cannot be sold.
The company’s management determines prices.
There isn’t a certain place in the world.

 

Secondary Market: Also known as the stock market or stock exchange, it offers a venue for the buying and sale of existing securities.

trading only with existing shares.
Without the firms’ involvement, investors trade ownership of existing securities.It improves share liquidity, which means that the secondary market indirectly encourages capital formation.
The stock exchange is a marketplace where securities are bought and sold.
Prices are established based on supply and demand for the security.
only found in certain locations.

Functions of the Capital Markets
The following are some of the main tasks or commitments that India’s capital markets have:

bringing together people who have excess capital and others who are in need of capital.
aims to improve transactional effectiveness
promotes economic expansion and guarantees ongoing financial availability
ensures the efficient movement and use of capital, increasing national income.
reduces the cost of transactions and information
provides protection against market dangers

Benefits of the Capital Market
For both capital suppliers and capital seekers, the capital market offers the following benefits:

Transfer of funds between those who have the money and those who need it
increased transactional efficiency
Investments such as shares can be used to generate dividend income.
Long-term growth in investment value leads to higher returns.
Bonds and securities offer interest rates that are higher than those offered by banks.
By investing in the stock market, investors might receive tax benefits.
It is possible to use capital market securities as security for bank loans.
reduces the cost of transactions and information
provides protection against market dangers

IPO: initial public offering

A previously unlisted firm can sell new or existing securities and make them available to the public for the first time through an initial public offering (IPO). Below are further specifics about the IPO:


It is the method by which a private company can become publicly traded by offering its shares for sale to the general public.
A company that chooses to list on an exchange and subsequently go public could be brand-new, youthful, or an established business.
By issuing new shares to the public or selling existing owners’ shares to the public, companies can raise equity capital with the aid of an IPO. They don’t need to raise any further funds.

A business that sells shares to the public is not obligated to pay back the capital to the investors in the public.
An ‘issuer’ is the business that makes its shares available for purchase. Investment banking firms assist in achieving this.
The company’s shares are traded on a public market after the IPO.
Through secondary market trading, the investors may sell such shares in the future.

Stock market or Exchange
A company that offers a platform for the purchase and sale of existing securities is a stock exchange.
The stock exchange serves as a market that facilitates the conversion of securities, such as shares and debentures, into cash and vice versa.
The stocks Contracts (Regulation) Act of 1956 defines the stock exchange as any group of people, whether or not they are corporations, who are established for the purpose of helping, regulating, or controlling the activity of buying and selling or dealing in stocks.

NSE, or the national stock exchange
It is the most recent, cutting-edge, and technologically advanced exchange. It was founded in 1992 and granted stock exchange status in April 1993.
1994 marked the year that the NSE began operations, with trading on the wholesale debt market segment.
It has established a nationwide screen-based trading system that is totally automated.
The NSE is the top stock exchange in India and the second largest in the world by the volume of equity share trades from January to June 2018, according to the World Federation of Exchanges (WFE).
The NSE’s managing director and managing director is Mr Vikram Limaye.

BSE, or the Bombay Stock Exchange
Asia’s first stock market, The Bombay Stock market Ltd., was founded in 1875.
The Securities Contract (Regulation) Act of 1956 gave the BSE official legitimacy.
It has helped the corporate sector expand by giving a platform for capital financing.
The Native Share Stock Brokers Association, the predecessor to the BSE, was founded in 1875.
In 2017, it became India’s first listed stock exchange.
The BSE established India INX, the country’s first international exchange, which is based in Ahmedabad’s GIFT City IFSC.
The exchange has about 5000 listed firms, both domestically and internationally, making BSE the largest market capitalization platform in India.
Managing Director and CEO of the company is Mr. Ashish Kumar Chauhan of the BSE.

 

Demat Account


A dematerialization account, or DEMAT, is used to store shares and securities electronically.
It consolidates all of a person’s investments in shares, government securities, bonds, mutual funds, etc.
Depositories in India, including NSDL and CDSL, provide free demat account services via intermediaries/depository participants and stock brokers (such as Angel Broking, ShareKhan, etc.).

some important terms for Finance

Equity Shares 
• A form of fractional ownership in a corporate endeavor, it is referred to as an ordinary share.
They can be divided into cumulative preference shares, cumulative non-convertible preference shares, bonus shares, preference shares, and rights issue/rights shares.

Mutual Fund
Mutual Funds are corporate entities that are registered with SEBI that pool capital from individual and corporate investors and use it to buy a variety of assets and financial products.
o Mutual funds are a type of financial intermediary in the investment industry that raises money from the general public and makes investments on the investors’ behalf.

 

Debentures
It is written document acknowledging debt under the company’s common seal It contains contract for the repayment of principal after predetermined amount of time, at intervals, or at the company’s discretion, as well as for the payment of interest at fixed rate payable typically every six months or once year on specific dates.

 

 

Bonds 

bond is typically unsecured, tradable certificate of obligation. firm, municipality, or government body typically issues bonds. An investor in bonds loans money to the issuer, and in return, the issuer agrees to repay the debt on the agreed-upon maturity date. Bond types include treasury bills, convertible bonds, and zero coupon bonds.
 

Derivatives
o It is a product whose worth is determined by the value of one or more fundamental variables, often known as underlying. Equity, index, foreign exchange (FX), commodity, or any other asset might be the underlying asset.
o Forwards, futures, and options are three different categories of derivatives.

 

 

what do you mean by share splitting or stock splitting ?

It is a business or corporate decision to divide existing shares with a certain face value into smaller denominations in order to increase the total number of shares. The market capitalization or the value of the investors’ shares after the split, however, is unchanged from what it was before.

we can better understand with the help of recent new about Chennai-based tyre maker MRF company on Tuesday passed a new Dalal street milestone as it  become the first stock to cross the 1 lakh price mark per share.

 you can ask why this share price so high

even the market capitalization of Rs42,390 crore, does not feature among the top companies  in terms of valuation.

this list is lead by RIL with a market cap of over Rs 17 lakh crore and second TCS Rs 12 lakh crore.

market cap =total share *per share value

MRF share price is high because they are not split share since long time ,

e.g.-Mr. A own  2 share of MRF, per share price 1 lakh rupee  if MRF decide to split and say 1 share will be equal to 2 share then  Mr A will own   4 share  with price of Rs 50,000 each.

 

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