Devaluation of Currency (Rupee) & Contingent Liabilities

 

Devaluation of Currency (Rupee)

Decreasing rupee value in foreign exchange market. In 1991 as a immediate measure to resolve the Balance of payment (BOP) crisis the rupee was devaluated against foreign currencies. This was to boost the exports and  this led to an increase in the inflow of foreign exchange. 

Contingent Liabilities 

Liabilities that may be incurred by an entity depending on the outcome of a uncertain future events such as court case, income tax disputes, sales tax disputes etc. These liabilities are not recorded in company accounts and shown in the balance sheet. 

MONETARY POLICY INSTRUMENTS

1. Repo Rate (4%): It is the rate at which the RBI lends money to commercial banks.

2. Reverse Repo Rate (3.35%): It is the rate at which the RBI borrows money from commercial banks.

3. Liquidity Adjustment Facility (LAF):  It is a monetary policy tool which allows banks to borrow money through repurchase agreements. Simply LAF is used to aid banks in adjusting the day to day mismatches in liquidity. LAF consists of repo and reverse repo operation.

4. Marginal Standing Facility (MSF): A facility under which scheduled commercial banks can borrow an additional amount of overnight money from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest. This provides a safety valve against unanticipated liquidity shocks to the banking system.

5. Bank Rate/Discount rate (4.25%): It is the rate of interest which a central bank charges on the loans and advances to a commercial banks.  

6. Cash Reserve Ratio (CRR) (3.5%):  It is the amount of funds that the banks have to keep with the RBI.

7.  Statutory Liquidity Ratio (SLR) (18%): It is the term for reserve requirement for commercial banks in India which they have to maintain in the form of gold, government approved securities before providing credit to the customers.

8. Open Market Operations (OMOs): It refers to a central bank buying or selling short-term Treasuries and other securities in the open market in order to influence the money supply.

9. Market Stabilization Scheme (MSS): Market Stabilization scheme (MSS) is a monetary policy intervention by the RBI to withdraw excess liquidity (or money supply) by selling government securities in the economy