onomi     on epts and erminolo ies          22.29
     with the RBI for short-term periods (i.e., less than conditions for international funds and are widely
     one year which is usually from one day to seven      used by the banks as a basis for determining the
     days, in practice), known as the Reverse Reop. On    interest rates charged on the US dollar and foreign
     such deposits to the RBI, the banks get an interest  currency loans to the business customers.
     rate of 6 per cent per annum at present.
                                                             life-cycle hypothesis
        lAffer curve
                                                          An idea which states that current consumption
     A curve devised by the economist Arthur Laffer       is not dependent solely on current disposable
     in 1974 which links average tax rates to total tax   income of the consumers but is related to their
     revenue. It suggests that higher tax rates initially anticipated lifetime income. This hypothesis has
     increase revenue but after a point further increases its high applied value in the real life economic
     in tax rates cause revenue to fall (for instance     management.
     by discouraging people from working). But it is
     tough to know whether an economy is on the              life insurAnce: some importAnt
     Laffer curve, as higher taxation breeds evasion of      terms
     taxes too.
                                                          enDoWment Policy
        liAr loAns
                                                          Insurance policies where a lump sum is payable
     A term associated with the financial world which     either at the end of the policy term or if the
     created news after the US financial system was hit   insured dies during the policy tenure, are termed
     by the subprime crisis in mid-2007.                  as endowment policies.
          These are the loans wherein borrowers
     fraudulently mis-state their incomes often egged     beneficiAry
     on by the lender or broker to the bank. Such         A person or organisation legally entitled to receive
     frauds have been detected along the entire US        benefits.
     mortgage financing chain by September 2007–
     websites freely advertised that for a nominal fee,   term life insurAnce
     they could produce sufficient proof of income by     In most cases, term life insurance refers to a
     generating bank statements, pay slips, income tax    product that provides death benefit protection
     returns, and provide references. Lenders in turn     for a specified period of time, say for 30 years.
     lied about the real terms and conditions of the      Benefits are doled out under this scheme only if
     loans to borrowers and lied about the quality of
                                                          the insured dies during the term.
     loans sold to investors. The whole gamut of these
     deeds make such mortgage loans the ‘liar loans’.     Whole life insurAnce
                                                          It is a policy that provides insurance coverage for
        libor
                                                          the entire life of the individual for a fixed premium
     The London Interbank Offered Rate (LIBOR)            throughout his life insurance, coupled with an
     is the interest rate on dollar and other foreign     investment component. Investments could be
     currency deposits at which larger banks are          made in stocks or bonds that lead to accumulation
     prepared to borrow and lend these currencies in      of cash values. The augmented cash reserves are
     the Euro-currency market. The rate reflects market   returned once one decides to surrender the policy.