Economic Survey Important Terms Part 4

1. Written off Loans:

Banks prefer to never have to write off bad debt since their loan portfolios are their primary assets and source of future revenue. However, loans that cannot be collected or are unreasonably difficult to collect reflect very poorly on a bank's financial statements and can divert resources from more productive activity. Therefore, banks write off bad debt that is declared non collectable removing it from their balance sheets.

There is no meaning that the borrower is pardoned or got exempted from payment.

1. NEER:

The nominal effective exchange rate (NEER) is an unadjusted weighted average rate at which one country's currency exchanges for a basket of multiple foreign currencies. In economics, the NEER is an indicator of a country's international competitiveness in terms of the foreign exchange (forex) market.

The NEER only describes relative value i.e. it only describes whether a currency is weak or strong, or weakening or strengthening, compared to foreign currencies.

A higher NEER coefficient (above 1) means that the home country's currency is usually worth more than an imported currency, and a lower coefficient (below 1) means that the home currency is usually worth less than the imported currency.

1. REER:

The real effective exchange rate (REER) is the weighted average of a country's currency relative to an index or basket of other major currencies, adjusted for the effects of inflation.

The REER is used to measure the value of a specific currency in relation to an average group of major currencies.

A country's REER is an important measure when assessing its trade capabilities and current import/export situation.

1. Labour Force Participation Rate (LFPR):

Labour force participation rate is defined as the section of working population in the age group of 16-64 in the economy currently employed or seeking employment. People who are still undergoing studies, housewives and persons above the age of 64 are not reckoned in the labour force.

The Labour Force Participation Rate (LFPR), obtained by dividing the number of persons in the labour force by total population, is an important parameter in employment projections and formulation of employment strategies.

At the time of recession, it is generally seen that the labour force participation rate goes down.

1. Liquidity Adjustment Facility (LAF):

A liquidity adjustment facility (LAF) is a tool used in monetary policy by the RBI that allows it to borrow money through repurchase agreements. LAF allows banks to respond to liquidity pressures.

It is used by governments to assure basic stability in the financial markets.

LAF includes both repos and reverse repo agreements. It is also known as Liquidity corridor.

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