'Cheque' is an instrument which contains an unconditional order, drawn on a banker, directing to pay a certain sum of money to the person whose name is specified in the instrument. In contrast, 'Bill of Exchange' is a document contains an unconditional order, directing a person, to pay a certain amount to a specified person. A negotiable instrument is a written document, which entitles a certain amount and is transferable from one person to another, by simple delivery or by endorsement and … [Read more...]

Business organizations need funds in order to meet their monetary requirement. Funding provided by banks for this purpose can either be long term or short term. Nowadays individuals/entities choose short term loan facility, in the form of cash credit and overdraft. Cash Credit is a type of facility provided by the bank or financial institution in which, a company can withdraw an amount more than what he holds to his credit against the security of stock. On the contrary, Bank Overdraft is … [Read more...]

Before going to open an account in a bank, one should be clear in mind, as to which type of account is best suits their requirement. If a person wants to open an account to keep his/her savings to fulfill their future needs and desires to earn income from such savings then nothing is better than a saving bank account. However, if an individual or entity, wishes to open an account that can be operated end number of times, during a working day, then current account or checking account is … [Read more...]

When you spend money using your credit card, this means that you are not using your own money, rather you are taking a short-term loan. Credit history, paying capacity, income, and debts are the parameters that are taken into consideration while determining the maximum amount of credit. On the other hand, when you spend money using your debit card, it implies that you are spending the money you own, as it is directly linked to your current (checking) account or savings account, so once the … [Read more...]

An ATM card is a payment card, issued to the customers on request by the bank, that facilitates a customer to access automated teller machine and withdraw money any time. On the other hand, debit card is one that enables the cardholder to make electronic transfer of funds from the account associated with the card, while making a purchase. Nowadays, it is quite gruesome to carry a lot of money with us and also the fear of getting it robbed by the thieves, has forced people to keep a larger … [Read more...]

Repo Rate or repurchase auction rate is one at which the Reserve Bank of India, buys back Government Securities, from the commercial banks, based on the level of liquidity, the central bank wants to maintain in the country's economy. The central bank uses this as a tool to increase or decrease the supply of money in the economy. Marginal Standing Facility (MSF), is a window for banks, to take money on credit from the central bank, by pledging Government securities, in the case of emergency, … [Read more...]

In our monetary policy rate series, we have already discussed the CRR and SLR, Repo Rate and Reverse Repo Rate. So, in this session, we will go through the bank rate and MSF rate. The bank rate can be understood as the interest rate at which commercial banks borrow money from the central bank without any sale of securities. On the other hand, MSF Rate is the rate of interest at which commercial banks borrow funds overnight from the central bank, by giving government securities as … [Read more...]

The two Liquidity Adjustment Facility with the Central Bank are - Repo Rate and Reverse Repo Rate. Repo Rate is the rate at which interest is charged by the central bank, i.e. Reserve Bank for granting loans to a commercial bank. As against, Reverse Repo Rate is the rate at which interest is given to the banks which park their excess money with the Reserve Bank of India. What is Repurchase Option Agreement? Repo is an abbreviation for the Repurchase Option Agreement. It is a contract between … [Read more...]

Commercial banks are mandated to hold a fixed proportion of their average cash balance, as a reserve with the central bank, the amount of which should not be less than the specified percentage of Net Demand and Time Liabilities is called Cash Reserve Ratio (CRR). On the other hand, SLR or Statutory Liquidity Ratio is the amount which a commercial bank is required to maintain in the form of liquid assets, i.e. cash, gold and bonds, before extending loans to its customers. Basically, every … [Read more...]

Banker's Cheque or say pay order is an instrument, generally non-negotiable, issued by the bank on behalf of the customer, containing an order to pay a specified sum to the specified person, in the same city. On the other hand, demand draft is a financial instrument, used by people for the purpose of transferring money from one place to another. Whether it is a banker's cheque or a demand draft, the validation period of the two instruments is 3 months, i.e. after the expiry of three months, … [Read more...]