Section 45U of The Reserve Bank of India Act, 1934 in hindi
1[45U. Definitions.--For the purposes of this Chapter,--
- (a)"derivative" means an instrument, to be settled at a future date, whose value is derived from change in interest rate, foreign exchange rate, credit rating or credit index, price of securities (also called "underlying"), or a combination of more than one of them and includes interest rate swaps, forward rate agreements, foreign currency swaps, foreign currency-rupee swaps, foreign currency options, foreign currency-rupee options or such other instruments as may be specified by the Bank from time to time;
- (b)"money market instruments" include call or notice money, term money, repo, reverse repo, certificate of deposit, commercial usance bill, commercial paper and such other debt instrument of original or initial maturity up to one year as the Bank may specify from time to time;
- (c)"repo" means an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed;
- (d)"reverse repo" means an instrument for lending funds by purchasing securities with an agreement to resell the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent;
- (e)"securities" means securities of the Central Government or a State Government or such securities of a local authority as may be specified in this behalf by the Central Government and, for the purposes of "repo" or "reverse repo", include corporate bonds and debentures.]
Summary
- This section provides the official definitions for terms used in the regulation of derivatives and money market transactions.
- A derivative is defined as a financial instrument where the value comes from changes in things like interest rates, exchange rates, or security prices.
- Money market instruments include short-term tools like call money or commercial paper with an initial maturity of up to one year.
- A repo is explained as a way to borrow funds by selling securities and promising to buy them back later at a price that includes interest.
- A reverse repo is defined as lending funds by buying securities and agreeing to sell them back on a set future date.
- For the purpose of these transactions, securities can include government bonds and even corporate debentures.
Practical examples
FAQ
1. What is a derivative according to Section 45U of The Reserve Bank of India Act, 1934?
Under Section 45U of the Act, a derivative is an instrument settled at a future date whose value is derived from changes in interest rates, foreign exchange rates, credit ratings, or security prices.
2. How does Section 45U of the 1934 Act define a repo?
Section 45U of the Act defines a repo as an instrument for borrowing funds by selling securities with an agreement to repurchase them on a future date at an agreed price including interest.
3. What counts as a money market instrument under Section 45U of the Act?
According to Section 45U of the Act, these include call or notice money, repo, reverse repo, certificates of deposit, commercial paper, and other debt instruments with a maturity up to one year.
4. Are corporate bonds considered securities under Section 45U of the Act?
Yes, Section 45U of The Reserve Bank of India Act, 1934, specifically includes corporate bonds and debentures as "securities" when they are used for repo or reverse repo transactions.
Test yourself
Q1.According to Section 45U of The Reserve Bank of India Act, 1934, what is the maximum initial maturity for a money market instrument?
Q2.Under Section 45U of The Reserve Bank of India Act, 1934, which of these is a "reverse repo"?
Q3.Which of these variables can determine the value of a derivative under Section 45U of the 1934 RBI Act?
Q4.Under Section 45U of the 1934 RBI Act, a "repo" transaction is primarily used for what?