Treasury Inflation-Protected Securities (or TIPS) are the inflation-indexed bonds issued by the RBI Treasury. These securities were first issued in 1997. The principal is adjusted to the Consumer Price Index, the commonly used measure of inflation. The coupon rate is constant, but generates a different amount of interest when multiplied by the inflation-adjusted principal, thus protecting the holder against inflation. TIPS are currently offered in 5-year, 7-year, 10-year and 20-year maturities. 30-year TIPS are no longer offered. In addition to their value for a borrower who desires protection against inflation, TIPS can also be a useful information source for policy makers: the interest-rate differential between TIPS and conventional Treasury bonds is what borrowers are willing to give up in order to avoid inflation risk. Therefore, changes in this differential are usually taken to indicate that market expectations about inflation over the term of the bonds have changed. The interest payments Continue reading
Financial Concepts
Management Accounting – Definition, Objectives, Scope and Limitations
DEFINITION OF MANAGEMENT ACCOUNTING Management accounting is not a specific system of accounting. It could be any form of accounting which enables a business to be conducted more effectively and efficiently. It is largely concerned with providing economic information to mangers for achieving organizational goals. It is an extension of the horizon of cost accounting towards newer areas of management. Much management accounting information is financial in nature but has been organized in a manner relating directly to the decision on hand. Management Accounting is comprised of two words ‘Management’ and ‘Accounting’. It means the study of managerial aspect of accounting. The emphasis of management accounting is to redesign accounting in such a way that it is helpful to the management in formation of policy, control of execution and appreciation of effectiveness. Management accounting is of recent origin. This was first used in 1950 by a team of accountants visiting Continue reading
Cost Accounting – Definition, Objectives, Scope and Limitations
DEFINITION OF COST ACCOUNTING An accounting system is to make available necessary and accurate information for all those who are interested in the welfare of the organization. The requirements of majority of them are satisfied by means of financial accounting. However, the management requires far more detailed information than what the conventional financial accounting can offer. The focus of the management lies not in the past but on the future. For a businessman who manufactures goods or renders services, cost accounting is a useful tool. It was developed on account of limitations of financial accounting and is the extension of financial accounting. The advent of factory system gave an impetus to the development of cost accounting. Cost Accounting is a method of accounting for cost. The process of recording and accounting for all the elements of cost is called cost accounting. The Institute of Cost and Works Accountants, London defines Continue reading
Commercial Bill – Meaning, Characteristics and Types
Bills of exchange are negotiable instruments, drawn by the seller (drawer) of the goods on the buyer (drawee) of the goods for the value of the goods delivered. These bills are known as trade bills. Trade bills are called commercial bills when they are accepted by commercial banks. If the bill is payable at a future date and the seller needs money during the currency of the bill, he may approach his bank to discount the bill. The maturity proceeds or face value of a discounted bill from the drawee is received by the bank. If the bank needs funds during the currency of bill, it can rediscount the bill that has been already discounted by it in the commercial bill rediscount market at the available market discount rate. The RBI introduced the Bills Market scheme (BMS) in 1952 and the scheme was later modified into the New Bills Market Continue reading
Meaning of Life Insurance and Types of Life Insurance Policies
Life insurance is popularly referred to as life assurance. In the case of life insurance, the underwriter agrees to pay the assured or his heirs, a certain sum of money on death or on the happening of an event dependent upon human life in consideration of premiums paid by the assured. Section 2(11) of the Insurance Act, 1938 defines Life Insurance business as follows: “Life Insurance Business” is the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the happening of any contingency dependent on human life and any contract which is subject to the payment of premiums for a term dependent on human life and shall be deemed to include: The granting of disability and double or triple indemnity accident benefits if so provided in the contract of insurance. The granting Continue reading
Financial System – Meaning, Functions and Services
A financial system is a network of financial institutions, financial markets, financial instruments and financial services to facilitate the transfer of funds. The system consists of savers, intermediaries, instruments and the ultimate user of funds. The level of economic growth largely depends upon and is facilitated by the state of financial system prevailing in the economy. Efficient financial system and sustainable economic growth are corollary. The financial system mobilizes the savings and channelizes them into the productive activity and thus influences the pace of economic development. Economic growth is hampered for want of effective financial system. Broadly speaking, financial system deals with three inter-related and interdependent variables, i.e., money, credit and finance. The financial system provides channels to transfer funds from individual and groups who have saved money to individuals and group who want to borrow money. Saver (refer to the lender) are suppliers of funds to borrowers in return Continue reading