Saturday, December 28, 2019

The Reserve Bank Of India As A Regulator Finance Essay - Free Essay Example

Sample details Pages: 10 Words: 2899 Downloads: 9 Date added: 2017/06/26 Category Finance Essay Type Narrative essay Did you like this example? The regulators of the Indian financial sector are the Reserve Bank of India, the Ministry of Finance (Income Tax Department), Foreign Exchange Dealers Association of India, Deposit Insurance and Credit Guarantee Corporation, Fixed Income Money Market and Derivatives Association of India and the Clearing Corporation of India Ltd.  [1]  This paper shall deal with the most important of these regulators, the Reserve Bank of India. The Reserve Bank of India (RBI) is the central bank of our country. It was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934, based on the recommendations of the Royal Commission on Indian Currency and Finance (Hilton Young Commission) in 1926. The Central Office of the RBI, which was then located in Calcutta, was permanently moved to Mumbai in 1937. Today the RBI has 22 regional offices, mostly in State capitals. During its inception, the RBI was privately owned with a paid up capit al of five crores. On establishment, the RBI was handed over the function of issuing currency by the Government of India and the power of credit control by the then Imperial Bank of India.  [2]  However, the RBI is now fully owned by the Government of India post-nationalisation in 1949. The reasons behind the nationalisation of the RBI were twofold: first, to control inflation in India which existed since 1939 and second, in order to utilise it as a tool for economic change in India at a point of time when India was prepared to set out on its journey of economic growth and development.  [3] This paper shall discuss how exactly the RBI carries out its intended functions. In section II, this paper shall discuss the basic functions of the RBI. In section III, the author shall elaborate upon the organisational structure of the RBI and in section IV the author shall elaborate upon the specific role of the RBI as a regulator. Basic Functions of the RBI The preamble of the R eserve Bank of India Act, 1934 states that the objectives of the RBI are to regulate the issue of bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.  [4]  Thus, the basic functions of the RBI as stipulated in the Preamble of the RBI Act are threefold: First, the RBI performs the function of regulating the issue of bank notes (the RBI also exchanges or destroys currency and coins not fit for circulation).  [5]  In fact, by virtue of being the sole authority for the issue of currency in the country, the RBI is empowered to control money supply in the country; Second, the RBI keeps reserves in order to maintain monetary stability in India; Third, the RBI must operate the currency and credit system of India to its advantage. In pursuance of this function, the RBI also has the responsibility to maintain the internal and external value of the Indian Rupe e.  [6] One of the functions the RBI performs is that it has a monopoly with respect to the issue of currency (excluding one rupee coins and notes which are issued by the Government of India) according to section 22 of the RBI Act.  [7]  The notes are the liability of the Issue Department of the RBI only and hence the assets of the Issue Department are also kept separate from that of the Banking Department of the RBI. Such assets, according to section 33 of the RBI Act, must consist of gold coins and bullion, foreign securities, rupee coin, Government of India securities and Bills of Exchange and Promissory Notes payable in India and as are eligible for purchase by the RBI.  [8]  As per amendments to the RBI Act, it is mandated that the Issue Department of the RBI must at all times have an aggregate value of gold bullion and foreign securities worth not less than rupees two hundred crores of which gold coins and gold bullion should comprise no less that rupees hundred a nd fifteen crores. Provided such minimum was maintained by the RBI the volume of currency that can be issued by the RBI is not curtailed.  [9] The RBI is also the regulator and supervisor of the financial system in India. Firstly, it acts as a banker to both the Government of India and the State Governments and therefore handles their current financial transactions and also manages public debt. The RBI accepts money on behalf of the government and also makes payments for the Government.  [10]  Moreover, it acts as a manger of foreign exchange under the Foreign Exchange Management Act, 1999 and facilitates external trade and payment. Secondly, it acts as a supervisor and regulator of the financial sector in India which consists of commercial banks, financial institutions and non-banking finance companies under the guidance of the Board for Financial Supervision which was established in 1994. It lays down broad guidelines for banking operations within the country and acts as a banker to the scheduled banks. Commercial banks are expected to keep deposits with the RBI and when necessary they borrow from the RBI (the RBI functions as a lender of last resort to the commercial banks). The RBI also ensures price stability within India by controlling the volume of credit created by the commercial banks.  [11] Lastly, the RBI also has a developmental role in that it performs a variety of promotional functions directed at supporting national objectives. In pursuance of this function, the RBI has taken several promotional measures such as the establishment of financial corporations to ensure credit availability for the agricultural and industrial sector, the promotion of the establishment of Regional Rural Banks so that banking facilities may be available in the rural areas as well, the establishment of the Export-Import bank in India to finance exports and so on. Organisational Structure of the RBI The RBI has a Central Board and four Local Boards. Th e Central Board of Directors governs the affairs of the RBI. The Board consists of Official Directors and Non-Official Directors who are appointed by the Government of India. The Official directors include the Governor and not more than four Deputy Governors appointed under s.8(1)(a) of the Reserve Bank of India Act, 1934  [12]  . The Non-Official Directors include four directors nominated by the Central government, one from each of the four Local Boards in accordance with s.8(1)(b) of the RBI Act, ten Directors from various fields nominated by the Central Government under s.8(1)(c) of the RBI Act and one government official nominated by the Government of India in accordance with s.8(1)(d) of the RBI Act. The Governor and Deputy Governors are appointed for such period that may be determined by the Central Government to be appropriate, not exceeding five years. They are eligible for reappointment. In order to assist the Central Board, it has delegated some of its functions to the Committee of the Central Board which comprises of the Governor, Deputy Governors and the Directors who represent or reside in the locality in which the meeting is being held. All the other directors may be present at any such meeting which is held once weekly to discuss the current affairs of the Bank.  [13] The Central Board is advised by the 4 Local Boards for each of the four regional areas of India- West, East, South and North, and which are headquartered at Mumbai, Kolkata, Chennai and New Delhi respectively. They represent the interests of local cooperative and indigenous banks. They also perform such other functions as may be delegated to them by the Central Board. Each Local Board consists of five members who are appointed by the Central Government for a term of four years as per s.9 of the RBI Act.  [14]  The legal framework for the functioning of the RBI is provided by the Reserve Bank of India Act, 1934 and the Banking Regulations Act, 1949. Role of RBI as a Regulator This section shall discuss the role of the RBI as a regulator of the financial sector in India. Pursuant to these role, the RBI lays down guidelines and the framework within which the banking and financial systems must operate. As has already been mention above, the RBI acts as a banker to banks. Commercial banks maintain accounts with the RBI and borrow money from it when required. Commercial banks are therefore able to give credit to their customers based on the credit that they have received from the RBI. However, the extension of such credit is not uncontrolled as the RBI must function, according to the Preamble of the RBI Act, in a manner so as to ensure price stability in the nation. The power of such regulation is vested in the RBI by virtue of the Banking Regulations Act, 1949 and the Reserve Bank of India Act, 1934. The Banking Regulations Act, 1949 was enacted to ensure that the banking system was strong enough to help economic change and pursuant to this g ives the RBI the power to supervise the operations of the commercial banks in India. The RBI can issue directions to banks and they must comply with the same.  [15]  The RBI is empowered to control the operations of the commercial banks in that no commercial bank can provide its services without first obtaining a licence from the RBI. Such licence is required even for the purpose of opening branches. Any licence granted may be withdrawn where it is found that the bank is being managed improperly. In order to ensure the smooth conduct of an investigation into any such mismanagement, the RBI is empowered to inspect any commercial bank and its books and accounts through one or more of its officers. Where any defects are found the banks are expected to rectify them and the RBI may appoint Addition Directors to the Board of Directors in order to oversee such rectification.  [16]  Further, the approval of the RBI is required for the appointment, reappointment or termination of the appointment of the Chairman or Managing Director of any bank.  [17]  Most importantly, the RBI is vested with the power of Selective Credit Control i.e.,it can control the advances given by the commercial banks.  [18]  Pursuant to this power, the RBI can determine the policy in relation to advances that is to be followed by all banks or by any specific bank. The RBI may issue directions as to the purpose of advance, margins to be maintained in respect of the secured advances, rates of interest and any other terms and conditions in relation to the advances.  [19] In addition to exercising the power of Selective Control of Credit, the RBI also controls the volume of credit quantitatively so as to influence and keep in check the total volume of bank credit. The RBI performs this function through the utilisation of certain instruments. These instruments are the Bank Rate, Open Market Operations and Variable Cash Reserve Requirements. Bank Rate is the rate of interest at which the first class bills of exchange or other eligible paper from commercial banks are re-discounted by the RBI. The RBI controls the volume of credit by influencing the cost of credit through the bank rate by raising the bank rate when they want to reduce credit and bringing down the bank rate when they want to increase credit. However, irrespective of the bank rate, the readiness of commercial banks to borrow from the RBI is also a factor affecting the volume of credit in the market.  [20] Open Market Operations are another instrument used by the RBI to control credit. It implies influencing the reserves of commercial banks by buying or selling Government securities in the open market. The cash base of commercial banks is affected because when the RBI buys government securities in the market from commercial banks, there is a cash flow from the RBI to the commercial banks thereby increasing the reserves of the latter and consequently enabling them to increase the volume of credit that they may give. On the other hand, if the RBI were to sell government securities to the commercial banks, cash would flow from the latter to the former, thereby reducing the cash reserves of the commercial banks and consequently limiting the expansion of credit by them. However, it must be noted that the workability of this mechanism also depends upon the number of government securities available and the ability of the market to absorb them.  [21] The third instrument used by the RBI to control the volume of credit is Variable Reserve Requirements. As mentioned earlier, commercial banks are mandated to keep a certain percentage of their reserves as deposits with the RBI.  [22]  The RBI has the authority to increase or decrease such percentage. Where the RBI chooses to increase the percentage of reserves, the commercial banks will have lesser cash and consequently the volume of credit is reduced. Conversely, where the RBI lowers the percentage of cash reserves, t he commercial banks will have more cash available and consequently the volume of credit will also rise. The RBI is allowed to vary the minimum cash reserve requirements between 5% and 20% of demand deposits and 2% to 8% of time deposits. Commercial banks are further also required to maintain a Statutory Liquidity Ratio. In order to determine the Statutory Liquidity Ratio the cash in hand in India, balance in current accounts with the State Bank of India and its subsidiaries, balance with the RBI in excess of the minimum reserve requirement at 7% of the total of demand and time liabilities and investments in Government Securities, treasury bills and other approved securities in India are added and from the result is subtracted the borrowings from the RBI against approved securities and borrowings from the SBI and other notified banks. The Statutory Liquidity Ratio is the remaining liquid assets expressed as a percentage of the total demand and time liabilities.  [23]  Furthermore , the RBI is also empowered to impound deposits that exceed a certain level. In order to carry out the above functions, the RBI has several departments to keep a check on banks activities. For instance, the Department of Banking Operations and Development is concerned with regulating to capital adequacy, income recognition, asset classification, investment valuation, accounting and disclosure standards, asset-liability management and risk management systems. It is also vested with the responsibility of granting licences to new banks, foreign and domestic, and approvals for establishing subsidiaries and the taking up of novel functions by old banks. This department of the RBI also oversees the rehabilitation of poorly functioning banks. The Department of Banking and Supervision plays a role in enhancing the internal control systems within banks and also encourage greater utilisation of external auditors in supervising banks.  [24]  As mentioned before, the RBI acts as the supe rvisor and regulator of financial markets in India under the guidance of the Board for Financial Supervision. Based on the recommendations of the Narsimhan Committee, the Department of Banking Supervision was set up as a quasi-autonomous banking supervisory board in order to give operational support to the Board for Financial Supervision. This Department is headquartered in Mumbai and has sixteen centres.  [25]  The Department of Payment and Settlement Systems oversees the functioning of the payment and settlement systems of the RBI and other banks.  [26] Other than the above detailed functions in respect of broad guidelines for the banking sector, the RBI also plays a crucial role in implementing and monitoring the monetary policy of the nation. Further it is also responsible for the management of the Foreign Exchange Management Act, 1999. The Department of External Investments and Operations is responsible for the management of the exchange rate of the Indian Rupee and al so the investment of RBIs foreign exchange. The Foreign Exchange Department facilitates external trade and payment and also assists in the development of Indias foreign exchange market.  [27] Conclusion The above wide-reaching regulatory role of the RBI has placed it in a position which enables it to take any actions that may be required to maintain financial stability in the system. RBIs Report on Trend and Progress of Banking in India states that the combination of the RBIs role as both the monetary authority and the regulator and supervisor of banks has worked out very well in face of a financial crisis as many believe that the cause of the crisis was a lack of coordination between separate authorities that exist for the two functions in other nations. The Report states, [t]his is an arrangement that has stood the test of time, has protected financial stability even in the face of some severe onslaughts, and hence it may be desirable to continue with the present arrangeme nt in the interest of pre serving financial stability.  [28]  It further states, [t]he responsibility for financial stability cannot be fragmented across several regulators; it has to rest unambiguously with a single regulator, and that single regulator optimally is the central bank. This year, the Union Budget proposed the setting up of the Financial Stability and Development Council for the macro-prudential supervision of the economy whose function is to act as a super-regulator and coordinate among regulators like the RBI, IRDA, PFRDA and the SEBI.  [29]  However, in view of the success of the RBI in maintain financial stability in India during the financial crisis, its expertise in managing systemic risks and the fact that the crisis proved the monetary policy and structure and condition of the banking system are inextricably linked, it is would be best that if such new super-regulator be instituted, it be the RBI. Don’t waste time! Our writers will create an original "The Reserve Bank Of India As A Regulator Finance Essay" essay for you Create order

Friday, December 20, 2019

Advertising Analysis Tipalet Advertising - 1121 Words

Tipalet Advertising Tipalet was a company from the late 1960s known for its Tipalet cigarette and its provocative advertising. The company ran several advertisements focusing on a man and a woman smoking. Their most known advertisement was a magazine full-page ad featuring a man looking into a woman’s eyes and blowing smoke at her. The advert shows both young adults in a healthy state with the woman leaning in closer to the man’s exhaled smoke. Towards the bottom of the page, surely not coving the low cut shit of the woman is a box showing all of the different kinds of cigarettes they offer. Inside the box next to the different kinds of packs, it says, â€Å"Smokers of America, do yourself a flavor. Make your next cigarette a Tipalet. This sentence tells a lot about the goal of the advert, they were assuming most people smoked and would try another kind of cigarette. Advertisements like this are not seen today for good reason smoking is dangerous and will kill you. Laws have also been pas sed to limit the amount of advertisements as well as limiting the locations the can be publicly. Context and Description The background of the advertisement is orange-yellow to give the sense of warm calming colors. There is no scenery other than the colors but it is more yellow towards the top of the advert giving me the feeling it might be a warm sunny day. The man only takes up maybe twenty-five percent of the ad whereas the woman takes up almost half. The woman has her makeup done nicelyShow MoreRelatedThe Media Standards Authority s Two Primary Types Of Responses2477 Words   |  10 Pages Offensive advertising deliberately startles and offends its audience by violating norms for social values and personal ideals, and furthers challenge the public’s conventional understanding of the social order. Offense is often more scrutinized in popular media, such as television, film, and videogames, more so than it is in advertising. However, advertising has the most potential in subliminally molding social norms because it is everywhere and often filtered and passed off as nu isance. Through

Thursday, December 12, 2019

Effect of Price Inelasticity on Demand-Free-Samples for Students

Question: Write an annoted bibliography on If a business drops its price will it always increase demand - and will it make more profit? Answer: Article 1 Supply and Demand: Why Markets Tick Name of the resource Finance Development, 2017 Type of resource Government Site Name of the author / publisher Irena Asmundson Main findings The change in Price can take place for several reasons such as technology consumer preference, weather conditions. However the rate of change of demand is dependent on sensitive/insensitive of the changes in price. Usefulness- Consideration of market changes Reliability Compliance with International Monetary Fund Bias The website regularly updates its information Currency Updated on July 29, 2017 Strengths and/or weaknesses The weakness has been assessed with Complications from the distinguished features Article 2 - What is the effect of price inelasticity on demand? Name of the resource Investopedia, 2015 Type of resource Commercial site Name of the author / publisher Investopedia Main findings It has been discerned that price inelasticity has been conducive for the performance of the business. It offers the firms with the various types of the flexibility factors as per the change in demand. In case of price-inelastic goods or services a small change in the quantity demanded has been seen with percentage change in price. This consideration is seen to be having significant impact on the businesses and affects demand and total revenue. In case the goods are inelastic the quantity demanded wouldn't offset the decrease in price. This will result in lower revenue. If the prices of the inelastic goods are increased, there will be an increase in the total revenue and lead to lower amount of quantity demanded. The business dealing in price-inelastic goods are better equipped for profit maximization and better protected against downturns. Usefulness- Consideration of substitute products Reliability Realisable e-learning source Bias The website regularly updates its information Currency Last updated on January 29, 2015 9:31 AM EST Strengths- Consideration for luxury and ordinary products. Weakness- No consideration for Giffen goods Article 3 - The research on the impact of the changes of commodity price level in the world commodity exchanges on variation of general price level Name of the resource, 2017 Type of resource Journalistic Site Name of the author / publisher Mie?inskien? and Lapinskait? Main findings The main intention of the study is to investigate the influence of the changes pertaining to the commodity price level. The main objective of the research is to analyse the commodity price level in the world commodity exchanges. The main result of the study has been seen with the changing price level in Lithuania is dependent on the changes of commodity prices in world commodity exchanges. This has been mainly in terms of prices of Aluminium, cocoa, coal and oil. Usefulness The study is based on global level Reliability Accredited by Economics Sociology, Vol. 7, No 4, 2014 Bias Consideration of recent issues in economic development Currency Journal published in 2015 Strengths and/or weaknesses The changes in demand for price around the world Article 4 - The effects of Price on Demand Name of the resource Ahmad et al., 2014 Type of resource Journal Name of the author / publisher Main findings Main findings The study has revealed that when the change in price is restricted to the partial blockage of energy used and the demand of the consumers responding to the average price and reporting to the marginal price. Since several empirical evidence has shown the practical significance the change in the demand has been application due to several other factors. Usefulness The implementation has been conducive in the energy sector Reliability The study has been accredited by National Research Council Bias Consideration of the recent changes Currency Publication date is 2014 Strengths and/or weaknesses The main weakness is non consideration sectors other than energy Article 5- Impacts of Price Changes on Consumer Surplus Name of the resource Impacts of Price Changes on Consumer Surplus, 2016 Type of resource Commercial Site Name of the author / publisher Main findings The study has revealed that the increase in price will lead to a decreased amount of consumer surplus. It has been further discerned that there will be an increase in the consumer surplus in case there is benefit from the lower price which exceeds the costs from the shortage. The consumer surplus is always seen to be decreasing in nature in case the binding of the price floor in a market above the equilibrium price. Price helps in the defining the consumer surplus and the demand, when the price is pareto optimal or is seen to be at equilibrium. Usefulness Determination of price change and consumer surplus Reliability - The website regularly updates its information Bias It has updated the versions and this is based on version 5 Currency Published in 2017 Strengths and/or weaknesses The strength has been seen in terms of determination of consumer surplu References Ahmad, A.S., Hassan, M.Y., Abdullah, M.P., Rahman, H.A., Hussin, F., Abdullah, H. and Saidur, R., 2014. A review on applications of ANN and SVM for building electrical energy consumption forecasting.Renewable and Sustainable Energy Reviews,33, pp.102-109. (2017). [online] Available at: [Accessed 17 Aug. 2017]. Finance Development | FD. (2017).Finance Development. [online] Available at: [Accessed 17 Aug. 2017]. Impacts of Price Changes on Consumer Surplus. (2016).Boundless, [online] p. Available at: [Accessed 17 Aug. 2017]. Investopedia. (2015).What is the effect of price inelasticity on demand?. [online] Available at: [Accessed 17 Aug. 2017].