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Financial Markets and Risk
Finance & Accounting
Pages 4 (1004 words)
Introduction “Monetary policy is a tool used by the central bank to manage money supply in the economy in order to achieve a desirable growth.” (The Economic Times, 2011) The major role of any monetary authority is to decide on a rate of interest from time to time depending on the economic conditions prevailing in the country in order to promote growth and maintain stability.
The long term savings and investment products offered by banks and NBFI’s are mostly life assurance, pensions and other investment products such as fixed deposits with a long term maturity. Fixed deposits are time deposits which give a higher interest rate than the normal demand deposits. Pension products are aimed at meeting the retirement needs of investors wherein a lump sum amount is given to the investor which is accrued over the years. Investing in bonds (government and corporate) is another option where there is more safety even though the returns may be comparatively less. Some banks and many NBFI’s provide platform to invest in mutual funds also. II. Implications for individual savers and investors of a significant increase in the general interest rates. The most visible effect due to the increase in interest rates is on the loans borrowed and deposits made by individuals. An increase in interest rate means increase in the repo rates of banks. This will result in an increase in the mortgage loans’ interest as well as other loans and debts like credit card debt. ...
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