Financial Info

Some Definitions-

What is Subprime. Subprime Mortgages are housing loans made to borrowers with poor credit histories or no credit history and therefore do not qualify for lower prime market rates. A weak credit history can be late payments on Credit card, missed mortgage or interest payments, notice of defaults etc. A 2-4 percent higher intrest is charged to compensate for the increased future probability of default.

What is Same Stores Sales Most industry that continuously add or remove capacity have unieque productivitiy measures. Airlines track "Revenue passenger miles", Mobile companies ARPU (Average revenue per unit), hotels look at revPar (revenue per available room). Same-store Sales, the metric used by retailers is commonly defined as sales for stores open at least one year. Some use stores open for 13 months, some 14 months to calculate same Store sales. Double digit growth is a hallmark of a young chain which is adding plenty of stores, while healthy single-digit growth suggests a chain is maturing but still room to expand. On the other hand a declining same-stores sales indicate that pruning of unporductive stores needs to be done. (Info. obtained from SmartMoney-WSJ)

What is PEG This is to judge how expensive a company is relative to its current profit and growth expectations. The broad market's average is about 1.5. The PEG ratio divides a stock's P/E ration by the annual rate at which analysts expect its earnings to grow over the next several years. It's not a foolproof guage of valuation, but low-PEG stocks tend to outperform.

(Info obtained from SmartMoney-WSJ)

What is Repo-Rate

The rate at which the RBI lends money to the banks. Discount rate at which a central bank repurchases government securities from the commercial banks, depending on the level of money supply it decides to maintain in the country's monetary system. To temporarily expand the money supply, the central bank decreases repo rates (so that banks can swap their holdings of government securities for cash), to contract the money supply it increases the repo rates. Alternatively, the central bank decides on a desired level of money supply and lets the market determine the appropriate repo rate.

What is Reverse Repo rate

Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system.
Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man.

CRR Rate in India

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

Relation between Inflation and Bank interest Rates

Now a days, you might have heard lot of these terms and usage on inflation and the bank interest rates. We are trying to make it simple for you to understand the relation between inflation and bank interest rates in India.

Bank interest rate depends on many other factors, out of that the major one is inflation. Whenever you see an increase on inflation, there will be an increase of interest rate also.
Inflation is defined as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are less Goods and more buyers, this will result in increase in the price of Goods, since there is more demand and less supply of the goods.