Economic & Financial Rendezvous

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This thread is for people enthusiastic about the developments happening in the world related to economic and financial issues and are eager to contribute in healthy discussions about them. People can their share personal views, articles, editorials and any other intellectual piece of information. Aspirants of different exams are welcome to join this discussion to enhance their knowledge that can be helpful in the selection processes.

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New Liquidity Management Tool in RBI kitty: Standing Deposit Facility (SDF)


What is SDF?  A monetary instrument to manage surplus liquidity.

A facility for banks with excess funds to deposit it with RBI, without any requirement of  collateral for liquidity absorption. Currently, Reverse Repo (LAF measure) exists for banks to park funds with RBI. However, in case of RR, requirement of collateral security exists as a binding constraint. SDF tides over this constraint. 

Banks get interest on these funds parked with RBI.


Why SDF? Rationale?

1) To enable RBI to withdraw excess liquidity from the market without having to provide collateral security. During DeMo, RBI was faced with shortage of securities for reverse repo and resorted to increase in CRR, issuing CMBs etc. to withdraw excess liquidity from the market. Banks couldn't park funds with RBI as there was shortage of securities with RBI to offer as collateral under Reverse Repo.


2) Ensuring that Repo remains operational rate:  Liquidity plays a key role in transmission of policy rates . During excess liquidity in the market, it so happens that inter-bank money market rate (call rate) goes below the Repo Rate. It leads to Repo Rate being ineffective as a reduction in repo will not translate to a reduction in market rates, as they are already lower. SDF rate will enable setting of a floor rate. Call rate will be equal or higher than SDF rate, as if Call rate is lower banks will park funds with RBI instead.


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Bitcoin Rally: What is driving it?


Number of factors possibly

1) Lack of fair value- it cannot be ascertained what is 1 Bitcoin inherently worth as Bitcoin is not a value-producing asset

2) Scarcity factor- Similar to commodities like gold, complete certainty of supply with highly uncertain demand, the price of bitcoin is purely determined by demand and supply . Only 21 million exist, to be mined by 2040. More than 16 million have already been mined but further mining requires solving increasingly complex problems, leading to slower pace of further extraction.

3) Bitcoin futures- Chicago Mercantile Exchange(CME), Nasdaq are expected to come out with Bitcoin futures soon.

4) FOMO- fear of missing out

5) Irrational exuberance-driven by "money illusion" (when inflation is low, interest rates look subdued, thereby encouraging borrowing and investment in riskier assets)



Background:

Bitcoin emerged in the context of 2008 financial crisis as an accounting system for peer-to-peer electronic cash transactions without going through any financial institution.


 The transactions and the value of money would be recorded digitally on a publicly available and open ledger that contains all the transactions ever made, albeit in an anonymous and an encrypted form. This ledger is called blockchain. Considering the public and open nature of the ledger, proponents of this currency system believe, it could help weed out corruption and inefficiencies in the system. 

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The GDP data  for the Q2 y-o-y has come out yesterday. The manufacturing sector grew at 7 per cent in Q2 y-o-y. However, the IIP data for the same quarter showed 2.2 per cent growth y-o-y. Why this divergence?


The IIP is an indicator of production volumes. By aggregating the production across alll companies and industries, after assigning their relative weights, it arrives at the IIP index. 

For example, if a steel plant produces same volume of steel as it produced in last year the IIP data would show zero growth.


The GDP data calculates value-addition (GVA). GVA is calculated by totalling wages and EBIDTA for measuring growth. For estimating manufacturing GVA, CSO uses quarterly data on wages and earnings filed by private corporate companies listed on stock exchange (70% share) and IIP data for quasi-corporate and unorganised segment (30% share).

For example, even if a steel plant produces same volume but the prices of iron ore or coking coal falls and steel prices remain the same, the plant would have "added value". The GVA data would show growth hence. 




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Currently, we are seeing stock markets scaling newer peaks, driven by increased interest from FPIs. But, how does it affect the Indian economy in general?


FPI flows, besides bringing money into the stock markets (which even DII do), bring foreign currency. The inflow of foreign currency pushes the Indian Rupee up, thereby appreciating its value. This makes our imports cheaper and exports dearer.

This means lower crude oil prices for the economy (downward pressure on WPI), benefits aviation sector (importer of crude oil), besides other related products. Additionally, companies with foreign denominated debt (ECBs) benefit as they have to shell out lesser rupees for every foreign currency borrowed.

However, our exports are adversely impacted as they become less competitive. This affects sectors like IT, pharma, textiles, automobiles and ancillaries. Besides, the remittances, an important component of BoP, are also adversely affected, as they deliver lower value when converted to Indian rupee.


Ref: http://indianexpress.com/article/business/market/foreign-inflows-cross-rs-1-lakh-crore-in-2017-as-fpis-mutual-funds-play-big-bulls-insurance-firms-pull-out/

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Which is the best book to learn economics for layman?

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rs2310
@rs2310  ·  11,564 karma

Or better to watch Mrunal Youtube videos

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Anubhav22
@Anubhav22  ·  0 karma

Start from 12th class Economics book.

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Career opportunities in India after FRM


Banks, Financial Institutions, Accounting firms, management consulting firms all over the world need and hire risk management professionals. FRM is considered a valuable credential for these carers and also offers unparalleled mobility options.


FRM is a highly sought after credential throughout the world. While large-scale risk management firms remain as major employers of FRM professionals, one can work as a freelance Financial Risk Manager too. Although most major corporations and investment bankers take FRM services from risk management firms, few employs FRM professionals under their pay roll too. After receiving the FRM certification one can aim for positions such as Risk Quantification Manager, Credit risk specialist, Market risk specialist, Enterprise Risk Manager, Operational risk analysts, Regulatory risk analysts etc.The remuneration and other perks for FRM professionals are generally quite high. Most of the job profiles require extensive travelling and high pressure working environment too. However, if finance is your passion and calculative risk taking your speciality, then career as a FRM professional can be highly rewarding for you.


After completing FRM credential, one can aspire for the following positions in finance industry:

  • Risk Manager
  • Credit Risk Manager
  • Market Risk Manager
  • Regulatory Risk Manager
  • Commercial Risk Manager
  • Prudential Risk Manager
  • Operational Risk Analyst and Manager





|| Team Genesis - IFMR (Batch 2016-18) ||
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Quantico
@Quantico  ·  2,668 karma

@rikib Are you pursuing FRM ?

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rikib
@rikib  ·  634 karma

@Quantico preparing for iy

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can someone suggest me a good video source on economics to clear my concepts on indifference curves apart from income effect, substitution effect based on indifference curve apart from youtube ? 

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arpitvyas
@arpitvyas  ·  57 karma

Microeconomics by Bernheim and Whinston

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Quantico
@Quantico  ·  2,668 karma

Why Britain made an exit from the EU ? And what will be the consequences on the EU? Kindly explain in simple words

  
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bishnu_dash04
@bishnu_dash04  ·  118 karma

The EU has two fold to it. One is political union and the other one is economic union. UK was part of the political union. Historically formation of EU can be traced backed to post World war era wherein leaders realized that political unity is a must for rapid growth (world is struggling with recession post world war and Europe was the major casuality). UK was among the founding members of the EU alongside France,Germany, Spain. There is been growing apprehension amongst some of the nationalist British citizens that being part of EU is not benifitting UK. The open border policy, the free trade zone of Shingen Area etc have caused job losses and revenue losses to UK. The UK has to shell out more to adhere to stringent social security measures implemented by European Parliament.  They have to shell out high membership fees to remain part of EU. This basically formed the argument against remaining in EU.                                                 

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bishnu_dash04
@bishnu_dash04  ·  118 karma

Now Coming on to what are the consequences for EU of Brexit, It will be a realization of failed attempt to organise Europe. The Economic stability of European Countries are in danger. There will be more countries (Chez-Out, Italeave,Frexit) looking to follow the path of UK. With Europe Struggling in economic terms (PIGS countries and Greece being given bailouts) will lead to demands from them to keep themselves away from EU and thereby reviving their own currency. This will lead to more financial turmoil. The major beneficiary Germany has to bow to pressure considering that it can't always sustain bailout every time.  With UK not being part of Schingen free Zone there will be requirement of Trade treaties, Custom duties, Passports etc which will incur additional cost. The expats in UK also fear of losing their job. London contributing majority of economic transaction in UK , companies operating out of London have to shift base to some other EU Country or open new offices this will incur huge expenditure. Hence there is a lot of uncertain times ahead considering the Brexit.

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CCEA ( The Cabinet Committee on Economic Affairs) approved the proposal of Andrew Yule & Co. Ltd. to convert working capital term loan of 29.91 crore rupees from Bank Of Baroda into Equity Shares.

What is the Benefit from this proposal to Bank Of Baroda? And What should be the reason behind this step of conversion of loan into equity? Is it so that company is not able to repay the loan???

Anyone aware or has any views about?

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darshi.
@darshi.  ·  397 karma

@87ln Ok sir, I will take care of this in future. 😃 Thank you very much for the answer. Nice explanation. Satisfactory 👍 

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bishnu_dash04
@bishnu_dash04  ·  118 karma

This is part of SDR (Strategic Debt Restructuring) plan. This way the debt which have turned NPA has been converted to Equity and gives the Bank holding in the company. To be very frank this is like hoping against all odds that the company will turn around and banks will make bumper profit against the holding or by selling them in stock market will realize some money. To some extent hoping this to happen is not a bad idea but a if a company defaults on it loan repayment it is well understood that it has a problem of corporate governance. Share prices generally tumble and reach a low point whilst this exercise is undertaken (case in point being Kingfisher Airlines where SBI converted to Equity some debt but since the prices in stock exchage are really low they are struggling to realise the gains). However, the equity holding gives banks the power to effect change in management which they hope will change the fortune of the company. This is typical of investment banking culture of the US (Blackstone, Merril Lynch etc). However, the bigger question here is has the Indian Banks have the capability to effect such management change/take over and effect turnaround of companies. The success of this scheme can only be accessed once these actions bear fruit. Till then this can be termed as a desperate measure only.

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How Zara, Sensodyne And Others Use Behavioural Science To Unlock Value 


https://www.youtube.com/watch?v=lZVDe26J3ZA

|| Team Genesis - IFMR (Batch 2016-18) ||
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