Here is the next quiz in the quiz/MCQ series for Principles and Practices of Banking. This quiz covers the topics of LIBOR MIBOR ICD MCQ. Answers are given at the end of the quiz.
Q1. How many depositories are there in India?
Depository is a place where financial securities are held in dematerialised form. There are two registered depositories in India viz. Central Depository Services Ltd and National Securities Depository Ltd.
An Inter-Corporate Deposit (ICD) is an unsecured borrowing by corporates and FIs from other corporate entities registered under the Companies Act 1956. The corporate having surplus funds would lend to another corporate in need of funds. This lending would be an uncollateralized basis and hence a higher rate of interest is demanded by the lender. The short term credit rating of the borrowing corprorate would determine the rate at which it would be able to borrow funds. Further the credit spreads demanded even for the top rated corporates would be higher than similar rated banks and the rates on ICDs would higher than those in the Certificate of Deposit (CD) market.
The tenor of ICD may range from 1 day to 1 year, but the most common tenor of borrowing is for 90 days.
Primary Dealers are permitted to borrow in the ICD market
The borrowing under ICD is restricted to 50% of the Net Owned Funds
The foreign exchange market is open 24 hours a day in different parts of the world. At any point in time, there is at least one market open, and there are a few hours of overlap between one region’s market closing and another opening.
The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans
It is computed for five currencies with seven different maturities ranging from overnight to a year. The five currencies for which LIBOR is computed are Swiss franc, euro, pound sterling, Japanese yen and US dollar
LIBOR is administered by the Intercontinental Exchange or ICE.
LIBOR is currently calculated for five currencies (USD, GBP, EUR, CHF and JPY) and for seven tenors in respect of each currency (Overnight/Spot Next, One Week, One Month, Two Months, Three Months, Six Months and 12 Months). This results in the publication of 35 individual rates (one for each currency and tenor combination) every applicable London business day.
The London Interbank Offer Rate provides a stable pool of 35 rates calculated daily under a monitored environment.
The Mumbai Inter-Bank Offered Rate (MIBOR) is the interest rate benchmark at which banks borrow unsecured funds from one another in the Indian interbank market
MIBOR is calculated every day by the National Stock Exchange of India (NSEIL) as a weighted average of lending rates of a group of major banks throughout India, on funds lent to first-class borrowers
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