22.46        ndian     onom
     felt that the value of assets should exceed the value
                                                              stAnDing Deposit fAcility scheme
     of liabilities by a certain margin. This margin
     which came to be known as ‘solvency margin’           The Standing Deposit Facility Scheme (SDFS) is
     became a useful device to force shareholder of a      a new monetary tool given to the RBI (announced
     life insurance company either to keep in reserve      by the Union Budget 2018-19). Such a facility
     a certain portion of the profit or to bring in        was proposed by the RBI in November 2015
     additional capital if there is not sufficient profit  itself. Such a tool was needed at the disposal of the
     to meet unforeseen contigencies. The European         RBI which it can use when the economy is flush
     Union developed an empirical formula taking           with excess fund. This will allow ‘uncollateralized
     recourse to the past experience to determine the      deposit’ of the liquidity in the economy if such a
     quantum of margin required. The IRDA has              need arises.
     stipulated that the excess of assets (including            Need of such a tool was felt last time when the
     capital) over liabilities should not be less than 150 Government demonetised the high value currency
     per cent of the solvency margin arrived at by the     notes of Rs. 500 and Rs. 2000 denominations in
     EU formula.                                           November 2016. As people were depositing the
                                                           demonetised currencies in their bank accounts
                                                           the banking industry was flush with excessive
        sovereign risk
                                                           fund (temporarily). To handle the situation
     The risk of a government defaulting on its debt or    RBI increased banks CRR (Cash Reserve Ratio)
     a loan guaranteed by it (all international loans by   temporarily to syphon out the excess liquidity
     the private companies are basically guaranteed by     with the banks.
     the government of an economy).
                                                              steAlth tAx
        spot price                                         A popular name given to an obscure tax increase as
     The price quoted for anything in a transaction        for example stamp duty, property tax etc. Which
                                                           get implemented months later by the time they
     where the payment and delivery is to be done now.
                                                           usually fade out from the public memory.
        spreAD
                                                              stochAstic process
     A frequently used term of financial market which
                                                           It is a process that shows random behaviour. As
     is the difference between two items, for example,
                                                           for example, Brownian motion which is often used
     the spread (i.e., the difference) an underwriter      to describe changes in share prices by the experts
     pays for an issue of bonds from a company and         in an efficient market (random walk), is such a
     the price it charges from the public. Similarly, the  process.
     returns on two different bonds if they are different;
     the difference is known as the spread.                   sub-prime crisis
        stAnDArD DeviAtion                                 The word ‘sub-prime’ refers to borrowers who
                                                           do not have sound track record of repayment of
     It is a statistical technique to measure how far      loans (it means such borrowers are not ‘prime’ thus
     a variable moves over time away from its mean         they could be called as ‘less than prime’ i.e. ‘sub-
     (average) value.                                      prime’). The ‘sub-prime crisis’ which has been