Question

A derivative contract for exchange of one instrument for another is called

• A. Futures
• B. Option
• C. Swap
• D. Forward contract

Answer 1

Answer:

C. Swap

DIRECT INSTRUMENTS OF MONETARY POLICY OF RBI:

1. CRR (Cash Reserve Ratio)

•  It is the certain percentage of net demand and time liability (NDTL) of banks that must be maintained with RBI.
• The refinance fund from NABARD, SIDBI, RBI are exempted from CRR provision.
• There is a penal charge for not maintaining CRR at the rate of 3%.

2. SLR (Statutory Liquidity Ratio):

• It is a requirement that, commercial banks have to keep a specified portion of their NDTL (Net Demand & Time Liability) in liquid assets.
• SLR is maintained in the form of cash, gold or bond (govt. security).
• Penal charge for not maintaining CRR, SLR is 3%.

3. Refinance Facility:

• RBI provides refinance facility which includes foreign exchange and currency swap facility.
• Swap is a derivative contract for exchange of one instrument for another.
• In RBI currency swap, RBI buys foreign currency and release equivalent amount in Indian Rupee in Indian market.