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ET FinPro mod 2 final 2

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ET FinPro mod 2 final 2

  1. 1. Evaluate the Statement: "Investors should be aware of the monetary policy before planning their investments“. Illustrate with example. PGDBM-6 Group-4 Presented By: Enrollment No. Alpha Nayak E13CC1079751 Anupriya Singh E13CC1078654 Karishma Biswal E13CC1081714 Smruti Ranjita Suar E13CC1079865 Subhasantak Mohanty E13CC1081206 Sujnani Kumari Gupta E13CC1080945
  2. 2. Agenda 1. Introduction 2. Monetary policy 3. Key Objectives of Monetary Policy 4. Instruments used by RBI under its monetary policy 5. Illustration using 3 Investment Options 6. Implication on Bank deposits 7. Implication on Stock market 8. Implication on Government Securities 9. Conclusion
  3. 3. Introduction  While economic education and awareness make private decision making easier, this knowledge and insight also may make the central bank’s job easier. A central bank’s commitment to education, information, and transparency enhances that central bank’s credibility , as well as the public’s ability to understand and anticipate policy decisions. How does this work?  If the public is able to accurately anticipate monetary policy decisions, then it also can incorporate better-informed expectations into private decision making.  Central banks can contribute to this awareness in at least two ways: through transparency in monetary policy making and public information and education efforts. source:SF%20Fed%20%20Awareness%20about%20monetary%20lpolicy
  4. 4. Monetary policy  Monetary policy is the macroeconomic policy laid down by the central bank.  It involves management of money supply, interest rate and the demand side of economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.  The RBI implements the monetary policy through open market operations, bank rate policy, reserve system, credit control policy, moral suasion and through many other instruments.
  5. 5. Key Objectives of Monetary Policy To maintain Price Stability (to control the rate of inflation) To achieve high Economic Growth (to attain higher percentage growth of GDP)
  6. 6. CRR • The percentage of the bank deposits that banks have to keep with RBI in the form of reserves or balances. SLR • The quantity of liquid assets that a bank has to keep with itself (in the form of cash, precious metals, etc.) for its time and demand liabilities. OMO • The operation of buying and selling of primarily government bonds from or to the public or banks. Repo rate • The rate at which RBI lends to commercial banks generally against government securities(for a short term). Bank rate • The rate at which RBI lends to commercial banks through its discount window to help the banks meet depositor’s demands and reserve requirements(for a long term). Instruments used by RBI under its Monetary Policy
  7. 7. Illustration using 3 Investment Options Bank Deposit Government Securities Stock Market
  8. 8. Implication on Bank Deposit CRR CRR increases (RBI targets inflation), deposit rate increases. CRR decreases, (RBI targets economic growth), deposit rate decreases SLR SLR increases (RBI targets inflation), deposit rate increases. SLR decreases (RBI targets economic growth), deposit rate decreases
  9. 9. Implication on Bank Deposit (contd.) OMO When G-secs are sold, less money prevails in the system, (aim behind it being controlling inflation), deposit rate increases When G-secs are bought (issued previously),more money prevails in the system, (aim behind it being higher economic growth), deposit rate decreases
  10. 10. Implication on Bank Deposit (contd.) Repo rate Repo rate increases, lending intrest rate increases, deposit rate too increases Repo rate decreases, lending intrest rate decreases, deposit rate too decreases Bank rate Bank rate increases, lending intrest rate increases, deposit rate too increases Bank rate decreases, lending intrest rate decreases, deposit rate too decreases
  11. 11. Implication on Stock Market CRR CRR increases, Economic growth decreases, production cost increases, profitability of company decreases, stock market crashes CRR decreases, Economic growth increases, production cost decreases, profitability of company increases, stock market flourishes SLR SLR increases, Economic growth decreases, production cost increases, profitability of company decreases, stock market crashes SLR decreases, Economic growth increases, production cost decreases, profitability of company increases, stock market flourishes
  12. 12. Implication on Stock Market (contd.) OMO When G-secs are sold, less money prevails in the system, (aim behind it being controlling inflation), production & product cost increases, profit to company decreases, share price decreases & stock market crashes When G-secs are bought (issued previously),more money prevails in the system, (aim behind it being attaining higher economic growth), production & product cost decreases, profit to company increases, share price increases & stock market booms
  13. 13. Implication on Stock Market (contd.) Repo rate Repo rate increases, lending intrest rate increases, production & product cost increases, profit to company decreases, share price decreases & stock market crashes Repo rate decreases, lending intrest rate decreases, production and product cost decreases, profit to company increases, share price increases & stock market booms Bank rate Bank rate increases, lending intrest rate increases, production & product cost increases, profit to company decreases, share price decreases & stock market crashes Bank rate decreases, lending intrest rate decreases, production and product cost decreases, profit to company increases, share price increases & stock market booms
  14. 14. Implication on Government securities CRR CRR increases (RBI is targeting inflation), further, RBI sells G-sec bonds to pull out excess money from the system CRR decreases (RBI is targeting economic growth), further, RBI buys pre-issued G-sec bonds to pump in more money into the system SLR SLR increases (RBI is targeting inflation), further, RBI sells G-sec bonds to pull out excess money from the system SLR decreases, (RBI is targeting economic growth), further, RBI buys pre-issued G-sec bonds to pump in more money into the system
  15. 15. Implication on Government securities (contd.) OMO When G-secs are sold, RBI’s aim is to pull out money from the system (to control inflation) When G-secs are bought (issued previously), RBI’s aim is to pump more money into the system (to attain higher economic growth)
  16. 16. Implication on Government securities (contd.) Repo rate Repo rate increases, lending interest rate increases (RBI is targeting inflation), further, RBI sells G-sec bonds to pull out excess money from the system Repo rate decreases, lending intrest rate decreases (RBI is targeting economic growth), further, RBI buys pre-issued G-sec bonds to pump in more money into the system Bank rate Bank rate increases, lending interest rate increases (RBI is targeting inflation), further, RBI sells G-sec bonds to pull out excess money from the system Bank rate decreases, lending intrest rate decreases (RBI is targeting economic growth), further, RBI buys pre-issued G-sec bonds to pump in more money into the system
  17. 17. Conclusion Awareness about the Monetary policy of a country is undoubtedly beneficial for the financial well-being of its citizens. People unaware of it cannot yield (or make) the most from a situation at hand, as it leaves them clueless about where the economy is heading. Knowledge about the economy, changes people’s perception & vision. If they know well, only then can they have a financial plan that is better & healthy. For, “Knowledge is Power & Power ofcourse, fetches Wealth”

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