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Don’t use oaths, whether ‘by heaven’ or ‘by earth’ or by anything else. When you say yes or no let it be plain ‘Yes’ or ‘No’. –Matthew 5:34-37

29 Jan 2016


Hi Friends,   Economic effects of the Stock Market:   

Wealth effect:   The first impact is that people with shares will see a fall in their wealth.  If the fall is significant it will affect their financial outlook.  If they are losing money on shares they will be more hesitant to spend money; this can contribute to a fall in consumer spending.  However, the effect should not be given too much importance.  Often people who buy shares are prepared to lose money; their spending patterns are usually independent of share prices, especially for short term losses.  The wealth effect is more prominent in the housing market.

Effect on Pensions:    Anybody with a private pension or investment trust will be affected by the stock market, at least indirectly.  Pension funds invest a significant part of their funds on the stock market.   Therefore, if there is a serious fall in share prices, it reduces the value of pension funds.  This means that future pension payouts will be lower.  If share prices fall too much, pension funds can struggle to meet their promises.  The important thing is the long term movements in the share prices.  If share prices fall for a long time then it will definitely affect pension funds and future payouts.

Confidence:   Often share price movements are reflections of what is happening in the economy.  E.g.  A fear of a recession and global slowdown could cause share prices to fall.  The stock market itself can affect consumer confidence.  Bad headlines of falling share prices are another factor which discourages people from spending.  On its own it may not have much effect, but combined with falling house prices, share prices can be a discouraging factor.  However, there are times when the stock market can appear out of step with the rest of the economy.  In the depth of a recession, share prices may rise as investors look forward to a recovery two years in the future.

Investment:   Falling share prices can hamper firm’s ability to raise finance on the stock market.  Firms who are expanding and wish to borrow often do so by issuing more shares – it provides a low cost way of borrowing more money.  However, with falling share prices it becomes much more difficult.

Bond Market:   A fall in the stock market makes other investments more attractive.  People may   move out of shares and into government bonds or gold.  These investments offer a better return in times of uncertainty.  Though sometimes the stock market could be falling over concerns in government bond markets.  (e.g. Euro Fiscal Crisis).

Good Luck.                                                                             See You later.

Q. Equilibrium income is that level at which
1. Full Employment exists
2. Actual saving is equal to actual investment
3. The community is spending exactly all of its income on consumption
4. The amount which society wishes to spend on investment is equal to the amount of its income which it does not wish to spend on consumption
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Ans: 4
Q. What does the letter F denote in 'NBFCS', a term seen very frequently in Banking world these days?
1. Formal
2. Fiscal
3. Federal
4. Finance

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Ans: 4
Q. Which of following is not a Negotiable Instrument?
1. Cheque
2. Fixed Deposit Receipt
3. Promissory Note
4. Bill of Exchange
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Ans: 2
Q. Which of the following is not a type of cheque?
1. Crossed cheque
2. Blank cheque
3. Speed cheque
4. Bearer cheque
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Ans: 3
Q. SBI has merged which of the following two associate banks with itself?
1. State Bank of Hyderabad & State Bank of Patiala
2. State Bank of Mysore & State Bank of Travancore
3. State Bank of Hyderabad & State Bank of Travancore
4. State Bank of Indore & State Bank of Saurashtra
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Ans: 4
Q. The rate below which bank cannot generally lend is called as
1. Base Rate
2. Floor Rate
3. Repo Rate
4. Call Money rate
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Ans: 1
Q. Which of the following is the classification of Industries onTHE BASIS OF raw-materials?
1. Small Scale- Large scale
2. Primary and Secondary
3. Basic and Consumer
4. Agro-based and Mineral-based
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Ans: 4
Q. Coin of which of the following denominations is called small coin?
1. Re. 1
2. Re. 2
3. Re. 5
4. 50 Paise
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Ans: 4
Q. Which one of the following is not a direct determinant of demand?
1. Savings
2. Income
3. Price of the commodity
4. Taste
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Ans: 1
Q. Bank deposits that can be withdrawn without notice are called
1. Account payee deposits
2. Fixed deposits
3. Variable deposits
4. Demand deposits
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Ans: 4

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