Questions asked related to economy for a finance domain student.Questions asked during the interviews.

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Concept ofGDP
The gross domestic product isone of the primary indicators used to gauge the health of a company’s economy.It represents
the total dollar value at all goods & represents the total dollar value at all goods & services produced over a specific time
period.you can think of it as the size of the economy usuualy GDP is expressed as a comparision to the previous quarter or
year
Example ;- If the year to year GDP is up by 3 % this is thought to mean the economy has grown up by 3 % over the last
year
The calculation can be done in two ways
- Either by adding up what every one earned in a year ( income approach)
- Adding up what every one spent (expenditure method)
Logically both measures should arrive at roughly the same total
What GDP indicates-> Have a large impact on health every one within that economy.for example when the economy is
healthy , you will typically see low unemployement & wage increase as business demand more labour to meet the
growing economy.A significant change in GDP whether up or down ,ussually have significant effect on the stock market.
A bad economy ussually means lower earnings for companies ,which translates into lower stock prices
Investors really worry about negative GDP growth ,which is one of the factors economists use to determine whether an
economy is in a recession.
Micro economics vs Macro economics
Microeconomics is generally the study of individual & business decisions ,Macroeconomics looks at higher up country &
governments decisions.
Micro economics ;- It is the study of decisions that people & businesses make regarding the allocation of resources &
prices of goods & services.
This also means taking into account taxes & regulations created by governments ,microeconomics focuses on supply and
demand and other forces that determie the price levels seen in the economy
For example ;- Micro economics would look at how a specific company could maximize its production & capacity so it
could lower its prices and better compete in industries
Macro economy ;- Macroeconomics ,on the other hand ,is the field of economics that studies the behaviour of the
economy as a whole & not just specific companies ,but entire industries & economies
This looks at economic wide phonemena such as gross domestic product & how it is affected by changes in employement
,National income,rate of growth & price levels.
For example ;- Macro economics would look at how an increase /decrease in Net export would affect a nation’s capital
account .
What is the relationship between inflation & interest rates
In general , As interest rates are lowered more people are able to borrow more money.The result is that consumers have
more money to spend ,causing economy to grow & inflation to increase.( Demand & supply)
The opposite holds true for rising interest rates,As interest rates are increased,consumers tend to save , As return from
saving are higher & less disposable income to spend as a result of the increase in savings,The economy grows & inflation
decreases.

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BALANCE OF PAYMENTS
The balance of payments is the method countries use to monitor all international money transactions at a specified usually
,the BOP is calculated every quarter & every calander year.
All the trades conducted by both the private & public sectors are considered /accounted for BOP to determine how much
money is going in & out of country.
Theoritically The BOP should be zero meaning the assets & liablities should be balanced ,but in practice this is rarely the
case.The BOP is divided into three main categories the financial account ,current account , & the capital account
The financial account
In the financial account international moneytary flows related to investments in the business, real state,bonds & stocks are
documented also included are government owned assets such as foreign reserves,gold special drawing rights held with
international moneytary funds ,private assets held abroad & direct foreign investment.
Current account
It is used to mark the inflow of goods and services into a country,earning on investments both public and private are also
put in the current account
;- With in current account are credit & debits on the trade of merchandise ,which includes goods such as raw material ,
manufactured goods that are given away.
;- Services refers to receipts from tourism transportation,engineering,business service fees & royalties from paytents &
copyrights
Capital account
The capital account is where all international capital transfers are recorded.this refers to the acquisition or disposal of non
financial assets for example a physical asset such as land & non produced assets which are needed for production but have
not been produced.
Fiscal policy
It means by which a government adjusts its spending levels & tax rates to monitor & influence a nation’s economy,It is
the sister strategy to moneytary policy through which a central bank(RBI)influences a nation’s moneytary supply.
Government adjust tax rates to influence the economy whereas RBI idoes it by adjusting interest rates,repo rates,CRR
rates,SLR rates
* Money tary policy is made by RBI whereasFiscal policy is made by ministry of finance
 What is GDP? What does it denote
It shows how much a counry has produced goods & services in a period of time ( Usu A quarter of a year)
It shows how the country has grown up from the previous quarter or previous year
It is shown as % growth over the last quarter such as 7 % up from last quarter
Current GDP is trillion dollar
 What is meant by income of a company
Profits from business
Capital gain
Income from property
Income from other sources such as foreign dividends,interest etc
What is recession

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A period of temporary economic decline during which trade & industrial activity are reduced generally identified by a fall
in GDP in two sucessive quarters
A recession is confirmed by negative gross domestic product for two or more sucessive quarters.A bear market can
precede or co inside with recession.other signs include rising unemployement declining real estate values & minimal
growth in business sector.
Depression
A recession that lasts for more than two or more years is known as depression ,ussually it lasts for years with several
economic depths.
Inflation vs deflation
Inflation;- Inflation is defined as rising prices,but in addition to retail price inflation measured by the consumer price
index,you also have moneytary inflation.
The growth of money supply or the total amount of money in the economy( money supply includes dollar ,checking &
savings accounts ,CDS & money market funds.The purchasing power of currency is falling.
Inflation is the rising price of goods and services over time. It's an economics term that means you have to spend more to
fill your gas tank, buy a gallon of milk or get a haircut. Inflation increases your cost of living.
Inflation reduces the purchasing power of each unit of currency.
There could be causes of inflation
- Cost push factor –This means that the supply is less other variable demand is constant
- Demand pull factor – Demand is more so the prices are increasing
- Import prices ;-India imports various minerals & other products from other countries ,If import prices are more
then the cost of these products will thus the inflation will increase.
- Oil prices
- Decline in productivity ;-If the firms become less productive then this may allow cost to rise ,This invariably
leads to higher costs
- Higher taxes;- Taxes such as VAT &excise duty are major part of cost of goods & services ,Increase in any of
those lead to inflation.
- Deficit financing;- The situation in which govt expenditure exceeds its revenues is called deficit financing Due to
deficit financing money supply in country increases but production does not increase as compare to the interest
rates therefore prices start to rise & causes inflation.
- Devalueation of currencies;- Devalueation of currency against forign currency is devalued then the import prices
will increase & these imported goods are used in various factors of production,Due to increase in production the
prices will start to rise & cause inflation.
Deflation The opposite of inflation ;- Prices fall this is a result of reduced money supply & reduced availibility of
credit.If no one buys anything.if no body buys anything business inventories increase as sales of consumer goods decrease
& prices drop in response.
As the prices decline ,there is little encourage to investments & hiring .
While there is deflation you should invest more money as the productivity and profitability will be more.
Borrowing long term money while interest rates are low during a recession is a good way to obtain capital for expansion
of the company.
Difference between inflation & deflation ;- Inflation means price of a basket of products have increased from 100 to 105
rs Deflation means price of a basket of products & services’ cost has come down from 100 to 98 rs

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Why repo rates are higher than reserve ratio;- An example would be ,where would you par the car
;- A closed park with lot of security
;-An open parking on road side
For a normal person its obvious to go with less riskier situations when all conditions are same.
Ifit is known that the parking /deposing money with a central banks if both repo rates are same which does not result in
money circulation.
The situation will further deteriorate if repo rate is lessor than the reserve rate as it will be illogicalit will mean that you
are getting paid for parking your veihcleso which can not be real in world.optimal usage will be little higher smount
would be charged for a secured parking /RBI or central banks Hence reverse repo rate will be lessor than repo rate.
How RBI controls inflation or increase money supply
Case 1 ;- if the depositor get good rates then this will encourage to deposit money in saving banks as banks are offering
good returns & therefore demand will be less for goods and services in turn.
The whole process will result in less demand & lessor prices so the inflation will be less.
Case 2 ;- when banks start charging higher rates of interest for lending this will discourage them from borrowing .people
will postpone their purchases of home ,vehicles & other items because of higher rates home/loan. This will again result in
reduced supply of money thus impacting consuption.
Less consuption_-> less demand
Less demand -> prices will come down & prices are down that means purpose is accomplished.
Using CRR ;- If CRR is decreases the CRR ,money will be more the market,so prices will come down & inflation is
recuded ,If CRR is increased money supply will go down which in turn reduce the demand so procedures will decrease the
prices to increase the demand so prices will come down.
By selling treasury bills ;- Selling treasury bills also inflation can be controlled
 Types of Tax
A tax is a financial charge or other levy imposed upon a tax payer
Kinds of taxes
Income tax
Negative tax corporate taxes
Capital gain tax
Types ofindirect taxes
Sales tax
Customs tax
Excise tax
Gas tax
Security transaction tax
GST
Direct taxes
They are personal liablity of tax payer they have to be paid by the person whom it is imposed They include
INCOME TAX;- this is the most important type of direct tax & almost evry one is familier to it
TDS is synonym of it & whoever is earning above a minimum amount is to pay as income tax
WEALTH TAX;- This is in addition to the income tax & is levied if your net wealth excess RS 30 lacs rs at the
rate of % on the amount exceeding RS 30 lacs
PROPERTY TAX/CAPITAL GAIN TAX
GILT TAX

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CORPORATE TAXES
GST tax ( An indirect tax)
France was the first country to implement GST system in 954
GST rates in different Countries
Australia - 20 %
France 9 6 %
Canada -5 %
Germany- 9 %
Japan- 5%
Singapore -7 %
Swedan - 5 %
India- 12 %
Pakistan- 8 %
Facts about GST
1. GST is a transparent tax & also reduces number of indirect taxes
2 Biggest benefits is that multiple taxes like Octroi, centralsales tax, licence fees,turnover tax etc will no longer present
& will be bought under GST
What are the items on which GST will be not applied?
Alcohol, tobacco, petroleum products are likely to be out of GST
FEW good things happened in recent past months which were good for economic perspective
World bank & moody’s investors service has given good rating to India
GST
Sebi has categorized 5 types of mutual funds schemes under which new fund offer should have different charaacterstics to
be born in the system
 Tax haven countries ;- These are the countries which have very less corporate taxesor almost a kind of nil ,it is
done for the growth of economy & increase the business & so as to generate more GDP figures
Switzerland
Netherland
Hong kong
Ireland
Singapore
New jersy
 Sanctioned countries ;-A person /a country is not alowed to certain things or perform actions in present or in future
is called as sanctioned countries,
Such countries are
Syria
Iran
North korea
Burma
Cuba
Capital of Different countries
Australia- Canberra
Bangladesh-Dhaka
China-Beijing
Costa Rica-San jose
France –Paris

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Italy-Rome
Indonasia- Jakarta
Israil-Jerusalem
Jamiaca- Kingston
Kenya- Nairobi
Japan –Tokyo
Malasia- Kuala lumpur
Mauritius- Port louis
Nepal –Kathmandu
Netherland –Amsterdam
Newzealand- Wellington
Oman-Muscat
Qatar- Doha
Thailand- bangkok
United arab emirates- Abu dhabhi
Russia – Moscow
Zimbabwe- Harare
United kingdom –London
United states of America- Washington DC
FDI investment in varous sector
Food products,pharma,aviation,animal husbandary, agriculture
railway infrastructure,telecom,tourism,Education, - All these sector 00 % FDI is allowed
Credit rating agencies-74 %
Insurance- 49 %
Stock exchange -49 %
Power -49 %
Print media- 26 %
FM radio- 26 %
Public sector banks- 20 %
Currencies & their values against each other
 US $ VS Euro 1 dollar =.84 euro
Means euro is stronger
 Us $ vs chinese yuan
1 us dollar =6.59 chinese yuan
 US $ VS JAPANESE YEN
1 DOLLAR = 111.99 japanese yen
 US $ VS Pakistan rupee
1 dollar = 105 rupee
World’s largest exchange in terms of volume is shaghai exchange in ChinaWorld’s largest economy
 United states of america- 19.42 trillion US dollars In terms of GDP
 China – 11.8 trillion
 Japan- 4.84 trillion dollars
 Germany – 4.13 trillion
 United kingdom- 2.5 trillion
 India- 2.45 trillion
Trillion means = 10 lacs * 10 lacs
THE REASONS FOR MERGERS AND ACQUISITIONS
Mergers and acquisitions take place for many strategic business reasons,but the most common reasons for any business
combination are economic at their core. Following are some of the various economic reasons:

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 Increasing capabilities: Increased capabilities may come from expanded research and development opportunities
or more robust manufacturing operations (or any range of core competencies a company wants to increase).
Similarly, companies may want to combine to leverage costly manufacturing operations (as was the hoped for
case in the acquisition of Volvo by Ford).
 Gaining a competitive advantage or larger market share: Companies may decide to merge into order to gain a
better distribution or marketing network. A company may want to expand into different markets where a similar
company is already operating rather than start from ground zero, and so the company may just merge with the
other company.
 Diversifying products or services: Another reason for merging companies is to complement a current product or
service. Two firms may be able to combine their products or services to gain a competitive edge over others in the
marketplace. For example, in 2008, HP bought EDS to strengthen the services side of their technology offerings
(this deal was valued at about US$13.9 billion).
 Replacing leadership: In a private company, the company may need to merge or be acquired if the current
owners can’t identify someone within the company to succeed them. The owners may also wish to cash out to
invest their money in something else, such as retirement!
 Cutting costs: When two companies have similar products or services, combining can create a large opportunity
to reduce costs. When companies merge, frequently they have an opportunity to combine locations or reduce
operating costs by integrating and streamlining support functions.
 Surviving: It’s never easy for a company to willingly give up its identity to another company, but sometimes it is
the only option in order for the company to survive. A number of companies used mergers and acquisitions to
grow and survive during the global financial crisis from 2008 to 2012
What are some rolesofan investment bank?
Investment banks serve a number of purposes in the financial and investment world, including underwriting of new stock
issues, handling mergers and acquisitions, and acting as a financial adviser.
Other roles of investment banks include asset management for large investment funds and personal wealth management
for high-net-worth individuals.
Underwriting New Stock Issues ;- One of the primary roles of an investment bank is to serve as a sort of intermediary
between corporations and investors through initial public offerings (IPOs). Investment banks provide underwriting
services for new stock issues when a company decides to go public and seeks equity funding. Underwriting basically
involves the investment bank purchasing an agreed-upon number of shares of the new stock, which it then resells through
a stock exchange.
Part of the investment bank's job is to evaluate the company and determine a reasonable price at which to offer stock
shares. IPOs,especially for larger companies, commonly involve more than one investment bank. This way, the risk of
underwriting spreads across severalbanks, reducing the exposure of any single bank and requiring a relatively lower
financial commitment to the IPO. Investment banks also act as underwriters for corporate bond issues.
inancial Advisory Roles;- Investment bankers act in several different advisory capacities for their clients. In addition to
handling IPOs,investment banks offer corporations advice on taking the company public or on raising capital through
alternative means. Investment banks regularly advise their clients on all aspects of financing.
Mergers and Acquisitions ;- Handling mergers and acquisitions is a major function of investment bankers. As with IPOs,
one of the main areas of expertise for an investment bank is its ability to evaluate the worth of a possible acquisition and
arrive at a fair price. An investment bank can additionally assist in structuring and facilitating the acquisition in order to
make the deal go as smoothly as possible.

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 NIFTY50 COMPANIES sector wise
Financial services- 7%
Information technology- 9 9 %
Energy- 5 7 %
Automobile- 9 4 %
Metal -4 63 %
 CRR ;-
 SLR
 CPI
 WPI-
 Purchasing power parity
 CRR (cash reserve ratio) ;- Under CRR certain percentage of total bank deposits has to be kept in current account
with RBI which means banks does not have access to that much amount of money for any economic or commercial
activity.
 SLR (statutory liquid ratio) ;- It is the indian government term for reserve requirements that the commercial banks
in india require to maintain in the form of gold,govt. approved securities before providing credit to customers
 IIP (Index ofindustrial production)
The index of industrial production in an index which details out growth of production in various sectors in an
economy
Such as mining, electricity, manufacturing
 Importance of IIP
As IIP shows the status of industrial activity whether it got increased or decreased or remained same. Better the IIP
figure indicates in industrial production. It makes investor & stock markets become more optimistic.
ITS relation with stock market
The optimism among the stock markets & investors translates into the markets going up. Thus ultimately it results
to growth in the country’s GDP thus making it an attractive investment destination to foreign.
CPI Data
 Consumer price index measures the price changes of goods & services that households acquire for the purpose of
consumption.
 CPI numbers are widely used as a macroeconomic indicator of inflation.
 As a tool by govt. & centralbanks for inflation targeting monitoring, price stability
 CPI is also used for indexing dearness allowance to employee for increase in prices. CPI therefore considered as one
of the important economic indicators.
 WPI
 Wholesale price index is the main measure of inflation, It measure the price of a representative basket of goods. It is
widely used by govts. ,banks ,industry & business circle. It takes price of a representative basket of wholesale goods
what is a partnership deed?;-Any organization where in all the partners together pool in their resources,skills, finance
and knowledge while also share company profits and losses as per the partnership terms of agreement is called as a
partnership firm. Trust and understanding in between the partners forms the very base of any successfulpartnership. A
person can either choose his partner or might even have a partner or partners assigned to him as per the partnership
agreement.
 Benefits of a Partnership Firm:
• Capital is pooled together from all the partners and thus makes it easier to establish a partnership firm without any
financial constrains
• Partners are saved from second taxation level as their income tends to flow in to their personal tax returns.
• At time of the company crisis, all the company losses are shared among the partners as per the agreed terms. This
saves a single person from bearing all the losses individually.
 • Every partner in a partnership is known to be both a principal as well as an agent wherein a principal is
bound by the other partners act and an agent binds other partners by his operations.