Investment Referral1

 1. The mathematical formula EMI= (P * R * (1+R) ⁿ)/ (1 + R) ^n-1

Where P stands for the loan amount or principle,

R is the interest rate per month [if the interest rate per annum is 11%,

then rate of interest per annum will be 11/ (12 * 100)],

and n is the number of monthly installments.

2. The actual formula used to calculate the PMI assigns weight to each common element and then multiplies them by 1 for improvement, 0.5 for no change, and 0 for deterioration.

A reading above 50 suggests an improvement, while a reading below 50 suggests deterioration.

3. The Statutory Liquidity Ratio is determined by the Central Bank as the percentage of Total Demand and Time Liabilities.

            The Time Liabilities refer to the Liabilities of a Bank which is to be paid to the Customer anytime the demand arises and are the Deposits of the Customers which are to be paid on Demand.

4. Reserve Ratio = Reserve Requirement * Bank Deposits.

Net Demand and Time Liabilities which is nothing but a summation of Savings Accounts, Current Accounts and Fixed Deposits which are held by the Bank.

Also, CRR formula, = (Reserved Maintained with Central Bank / Bank Deposits ) * 100%

Cash Ratio Formula = (Cash and Cash Equivalents) / Current Liabilities

5. Securities Transaction Tax is levied on each Purchase and Sale of Equity Listed on a Domestic and Recognized Stock Market. The Rate of Transaction is determined by the Government.

All Stock Market Transactions that involve Equity or Equity Derivatives like Futures and Options are liable to be taxed under the STT Act.

6. Business Activity Index- Each index is calculated by subtracting the percentage of Respondents Reporting a Decrease from the Percentage Reporting an Increase.

7. Consumer Price Index is calculated by dividing the Price of the Basket of Goods and Services in a Given Year (t) by the Price of the same Basket in a Base Year. This ratio is then multiplied by 100, which results in the CPI. In the base year, CPI always adds upto100.

CPI = (Cost of Basket in Current Period / Cost of Basket in Base Period) * 100

CPI = ($ 70 / $50) * 100 = 140

The CPI  is 40 percent higher in the Current Period then in the Base Period.

CPI is a measure that examines the Weighted Average of Prices of a Basket of Consumer Goods and Services, such as transportation, food and medical care.

It is calculated by taking Price Changes for each item in the pre-determined Basket of Goods and Averaging them.

8. A Current Account Deficit implies a reduction of Net Foreign Assets.

Current Account = Change in Net Foreign Assets.

If an economy is running a Current Account Deficit, it is Absorbing, where

Absorption = Domestic Consumption + Investment + Government Spending,

more than that it is Producing.

9. GDP = Private Consumption + Gross Investment + Government Investment + Government Spending + (Exports – Imports)

Nominal value changes due to shifts in quantity and price.

10. Per Capita Income or Average Income measures the Average Income earned per person in a given area (city, region, country, etc.) in a specified year.

It is calculated by dividing the area’s Total Income by its Total Population.

11. The Industrial Production Index is a monthly economic indicator measuring Real Output in the Manufacturing, Mining, Electric & Gas Industries, relative to a Base Year.

12. To calculate the Compounded Annual Growth Rate of an Investment:

Divide the value of an Investment at the end of the period by its value at the beginning of that period. Raise the result to an exponent of one divided by the number of years. Subtract one from

the subsequent result.

Compounded Annual Growth = (Present / Past) ^1/n – 1

= (310 / 205) ^{1/ 10} – 1

= 0.042223

= 4.22 %

13. The working definition of a Recession is Two Consecutive quarters of negative economic Growth as measured by a country’s GDP, although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a Recession, and uses more frequently reported monthly data.

14. Repo Rate refers to the Rate at which Commercial Banks borrow money by selling their Securities to the Central Bank of country, i.e (RBI) to maintain Liquidity, in case of shortage of funds or due to some statutory measures. It is one of the main tools of RBI to keep inflation under control.

15. To calculate Inflation, start by subtracting the current price of a good from the historical price of the same good. Then divide that number by the Current Price of the Good. Finally, multiply that number by 100 and write your answer as a percentage.

16. To calculate Growth Rate, start by subtracting the Past value from the Current Value. Then divide that number by the Past value. Finally, multiply your answer by 100 to express it as a percentage.

Eg. If the value of your company was $100 and now it’s $200, first you subtract 100 from 200 and get 100 and then divide the 100 by 100 (Past Value) & then multiply the result by 100.

17. For WPI, a set of 697 commodities and their prices are used for the calculation. The selected commodities are supposed to represent various strata of the economy and are supposed to give a comprehensive WPI value for the economy.

WPI is calculated on a base year and WPI for the base year is assigned to be 100.

To show the calculated, let’s assume the base year to be 2010. The data of whole sale prices of all the 435 commodities in the base year and the time for which WPI is to be calculated is gathered. Let’s calculate WPI for the year 2011 for a particular commodity, say wheat.

Assume that the price of a kilogram of wheat in 2010 = Rs.16.75 and in 2011 = Rs.1895

The WPI of wheat for the year 2011 is ((Price of wheat in 2011 – Price of wheat in 2010) /

(Price of wheat in 2010)) * 100

(i.e)(((18.95 – 16.75) / (16.75)) * 100 = 13.13

Since WPI for the base year is assumed as 100, WPI for 2011 will become 100 + 13.13 = 113.13

In this way individual WPI values for remaining 696 commodities are calculated and then the weighted average of individual WPI figures are found out to arrive at the overall Whole Sale Price Index. Commodities are given weightage depending upon its influence in the economy.

18. Reserve Repo Rate is a mechanism to absorb the Liquidity in the Market, thus restricting the borrowing power of investors. Reverse Repo Rate is when the RBI borrows money from Banks, when there is excess Liquidity in the Market. The Banks benefit out of it by receiving interest for their Holdings with the Central Bank.

During high levels of inflation in the economy, the RBI increases the Reverse Repo. It encourages the Banks to park more funds with the RBI to earn higher returns on excess funds. Banks are left with lesser funds to extend loans and borrowings to consumers.