What are stock indexes?

How are they calculated?

Indices can differ based on their method of calculation – which is based on certain specific theory of what elements will give a near perfect indicator of industry average etc.

Indices may be price-weighted (prices of the stock are considered for calculating the index), or, capitalization-weighted index which looks at market value of the stocks.

Mostly used method is market capitalization method, where

Market capitalization = market price of shares x number of shares outstanding (issued by the company)

Another method used is free float market capitalization method, where Market capitalization = market price of shares x number of share which are available for trading in the open market

How Sensex is Calculated

Famous indices and trivia:

Some very popular stock indices followed worldwide:

1. Dow Jones Industrial Average, The Global Dow

2. Dow Jones Asia Titans 50

3. S & P – Global 1000/1200 – (S&P = Standard and Poor’s)

4. S & P Asia 50

5. BBC Global 30

6. EURO STOXX 50

7. FTSE indices

8. NASDAQ indices

STOCK MARKET INDEXES IN THE WORLD

‘Sensex loses 556 points, slips below 28K’ screams Economic Times! But what does it mean? What is Sensex? Why has it lost 556 points? What does it mean that it has slipped below 28K?

What are stock indexes?

Stock Market, as we all know, is a market (a real/virtual market) where stock or shares are bought and sold – companies raise money through stock markets. In stock markets the shares of those companies which are listed with the Stock Exchange are bought and sold.

Stock markets will have stocks of numerous companies – at various price levels –

activity levels floating around.

Imagine your city’s biggest and most popular vegetable market – where vendors from all over the city come to sell their produce – so many vendors – so many vegetables – so many buyers and so many different prices!

Stock Exchange is essentially an organization – which enables the trade in shares by providing a ‘trading area’, staff, infrastructure and making connections between buyers and sellers and agents possible. Every stock exchange has its rules and regulations, which any company which wishes to get listed with it have to comply

with.

RISK WEIGHTED ASSETS

RWA means assets with different risk profiles; it means that we all know that is much larger risk in personal loans in comparison to the housing loan, so with different types of loans the risk percentage on these loans also varies.

BASEL-1

In 1988,The Basel Committee on Banking Supervision (BCBS) introduced capital measurement system called Basel capital accord, also called as Basel 1. . It focused almost entirely on credit risk, It defined capital and structure of risk weights for banks.

The minimum capital requirement was fixed at 8% of risk weighted assets (RWA).

India adopted Basel 1 guidelines in 1999.

BASEL-2

In 2004, Basel II guidelines were published by BCBS, which were considered to be the refined and reformed versions of Basel I accord.

The guidelines were based on three parameters which are as follows-

Banks should maintain a minimum capital adequacy requirement of 8% of risk assets.

Banks were needed to develop and use better risk management techniques in monitoring and managing all the three types of risks that is credit and increased disclosure requirements.

The three types of risk are- operational risk, market risk, capital risk.

Banks need to mandatory disclose their risk exposure, etc to the central bank.

Basel II norms in India and overseas are yet to be fully implemented.

BASEL NORMS

In the recent few days we have heard a lot that government is been infusing lot of money in the public sector banks….. To understand why??? We have to first understand that what BASEL ACCORD or BASEL NORMS is all about.

Basel is a city in Switzerland which is also the headquarters of Bureau of International Settlement (BIS).

BIS fosters co-operation among central banks with a common goal of financial stability and common standards of banking regulations.

The Bank for International Settlements (BIS) established on 17 May 1930, is the world's oldest international financial organization. There are two representative offices in the Hong Kong and in Mexico City. In total BIS has 60 member countries from all over the world and covers approx

95% of the world GDP.

OBJECTIVE

The set of agreement by the BCBS(BASEL COMMITTEE ON BANKING SUPERVISION), which mainly focuses on risks to banks and the financial system are called Basel accord. The purpose of the accord is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses. India has accepted Basel accords for the banking system.

NABARD- National Bank For Agriculture And Rural Development

NABARD was established on 12 July 1982 by the act of parliament .NABARD is the apex institution for the development of farm sector , cottage industries and small scale industries in rural areas. The Banking Regulation Act, 1949, empowers NABARD to conduct inspection of State Cooperative Banks (SCBs), Central Cooperative Banks (CCBs) and Regional Rural Banks (RRBs) and protect interest of the present and future depositor and also provide short and medium term loan to those banks working in rural areas development .It provides his expertise in rural areas to RBI and GOI in making policies.

The chairman of NABARD is appointed by GOI .The term of NABARD chairman is for three years

Headquarter - Mumbai

IRDA – Insurance Regulatory And Development Authority

IRDA was establishes in 1999 by the IRDA act ,1999 .It is the autonomous body established by act of parliament .It aim is to ensure growth of insurance sector in India.

IRDA was established as sole authority to regulate the insurance industry in India , to ensure the growth of insurance industry and protect the interest of policy holders.

For any company want to work in insurance sector needs prior approval of IRDA .It also perform supervision functions to ensure that different insurance companies including private following rules and regulations or not .It can take action against erring companies .IRDA works to protect the interest of policy holder and to regulate,

promote and ensure orderly growth of the insurance industry.

The chairman of IRDA is appointed by GOI .The term of IRDA chairman is for five years.

Banking Awareness Guide

Current Bank Rates :-

1. Bank Rate - 7.75 %

2. Cash Reserve Ratio (CRR) - 4 %

3. Statutory Liquidity Ratio (SLR) - 21.5 %

4. Repo Rate (RR) - 6.75 %

5. Reverse Repo Rate (RRR) - 5.75 %

6. Marginal Standing Facility (MSF) - 7.75 %

FINANCIAL SECTOR REGULATORS IN INDIA

RBI-Reserve Bank of India

RBI was established on 1 April 1935 with the sole aim to work as banking sector regulator .RBI was nationalized in 1949.RBI regulate the banking sector (government and private banks) by banking reglation act 1949 and RBI act 1935 which entrusted

responsibility on the RBI to work foru the enhancement of banking sector in India .RBI is the sole authority to issue banking licenses to entities who want to open bank in India , and if any bank want to open new branch it has to be take prior approval from RBI.

INSURANCE AWARENESS QUESTIONS & ANSWERS

1."Refund Banker Scheme" has been launched by

IBA RBI SEBI Income Tax Department

2.Bank can issue a duplicate of a lost demand draft at the request of the

Payee holder Purchaser Either A or C

3.A cheque can be paid in cash even after business hours when it is presented by

a person known to bank officials 

any person

the drawer

the payee

4.The amount of advance which may be granted against the security of a life insurance policy depends on

the amount of the insurance policy

the surrender value of the policy 

the paid-up value of the policy 

the total amount of premiums paid

5.Consent of RBI is necessary before transferring funds from one chest to another because

RBI is the owner of the Chest

RBI arranges transit insurance 

Police protection is arranged 

Details to be kept a secret

Insurance Awareness - GK

1.Economic Order Quantity is a method of

managing raw materials managing finished goods managing debtors managing creditors

2.Which Act confers on banks their Right of set off?

Banking Regulation Act, 1949 Reserve Bank of India Act, 1934 Negotiable Instruments Act, 1881 Indian Contract Act, 1872

3.Which Committee was formed to review the system of lending under Consortium Arrangement?

Kapoor Committee Khan Committee J.V. Shetty Committee Share Committee

4.Which of the following cannot issue a commercial Paper?

Companies Primary Dealers Commercial Banks All India Financial Institutions

5.The Bond can be

Zero Coupon Bond Deep Discount Bond Floating Rate Bond Any of these

GK and Banking Awareness

1.The main watchdog of international trade is

IMF World Bank GATT IFC

2.Which one of the following has largest network, accounts and annual deposits?

IDBI ICICI Post office saving bank IOB

3.The Interest Rate Policy is a component of

Fiscal Policy Monetary Policy Trade Policy Direct Control

4.Credit Guarantee Fund Trust for Small Industries has been set up on the recommendations of

Narasimham Committee Ghosh Committee Chore Committee Kapoor Committee

5.In respect of composite term, loans granted to village industries, refinance are obtained from

NABARD SIDBI IDBI RBI

GK Insurance quiz

1.Bad loans in banking terminology are generally known as

Prime Loans Prime Asset BPOs NPAs

2.Currency notes issued by RBI are fully covered by

Approved assets Gold Foreign exchange All of these

3.Authority to prescribe retention period of records of banks vests with

IBA RBI GOI SEBI

4.Ceiling for settlement through Lok Adalats is

Rs. 10 lakh Rs. 15 lakh Rs. 20 lakh Rs. 25 lakh

5.If a bank wants to introduce a new deposit scheme, the same is now approved by

RBI IBA respective Bank's Board Both A and B

Insurance Questions

1.Records, as per Banking Regulation Act, 1949 means

Vouchers Account Opening Forms Ledgers / Registers All of these

2.The Indicative Time Norm for issuing of demand draft has been stipulated at

5 minutes 10 mintues 15 mintues 20 mintues

3.In which year, the Tiwari Committee recommanded for establishment of Special Tribunals for Banks dues recovery?

1981 1987 1991 1995

4.As per the guidelines issued by the SEBI, the permanent Account Number (PAN) is a must for which of the following?

Demat Accounts All Savings Bank Accounts All Housing Loan Accounts All Current Accounts

5.The first Indian RRB that is sponsored by the Union Bank that has achieved core banking solution is

Kheladi Grameen Bank Riddhi Siddhi Grameen Bank Rewa Siddhi Grameen Bank The Rewa-Dahej Bank

Banking Awareness Questions

1.Which of the following institutions extends maximum term loan to States?

NABARD LIC IDBI IFCI

2.For which of the following purpose can banks grant Working Capital Term Loan?

Meeting margin for term loan Meeting margin for working capital loan Meeting contingent expenses Meeting credit needs for peak season in an industry

3.Loan System of Advances has been recommended by

Rashid Jilani Committee Narasimham Committee Goiporia Committee Tandon Committee

4.Which of the following is not an indicator of productivity for a bank branch?

Business Per Employee Accounts (both deposits and advances) Per Employee Net Profit Per Employee Neat and clean ambience

5."Service Area Approach" was recommended by

Dr. P. D. Ojha Committee A. D. Gorawala R. V. Gupta Dr. Kalia

Banking and Economy

1.As we know the RBI is the apex Bank of India, similarly the apex Bank of USA is called

Federal Reserve The Central Bank of USA Bank of America All of the above

2.The regulator of Micro Finance in India is

Finance Ministry Reserve Bank of India State Bank of India None of these

3.Banker's right of set off can be immediately exercised in case of

Insolvency of the borrower Lunacy of the borrower Death of the borrower All of these

4.Banks do not purchase/discount

Accommodation Bills Documentary Bills Usance Bills Clean Bills

5.The biggest international financial center in the world is

Frankfurt Geneva London New York