GOLD - A SAFE HAVEN FOR INVESTORS AGAIN ?

The quesTion financial of china inclusion

RBI ’s Monetar y Tightening - A Sneak Peek

THE FINANCE MAGAZINE OF I IFT DECEMBER 2011

E D I TO R - I N - C H I E F

Soumya J yot i Sen

E D I TO R I A L B OA R D

Rohit K hattar

Piyush Mar waha

R itesh Gupta

Sourav Dutta

D E S I G N

Team I nFINeet i

F E E D B AC K / Q U E R I E S

inf ineet i@i i f t .ac. in

inf ineet i@gmai l .com

P u b l i s h e d m o n t h l y b y s t u d e n t s o f I n d i a n I n s t i t u t e o f F o r e i g n Tr a d e , N e w D e l h i a n d Kolk ata

ALL RIGHTS RESER VED

HEllO Friends,

We are pleased to present to you the December 2011 edition of InFINeeti . The financial world has undergone many changes since the last issue . On the global front, S&P downgraded the U.S long-term debt rating to AA+ with a negative outlook . The crisis in Europe continues to loom large . The most recent attempt to salvage the crisis saw the European leaders divided on the issue of tighter fiscal integration within the EU. Closer to home , Moody’s downgraded S tate Bank of India’s credit rating citing “modest ” capital and weak-ening asset quality of the country’s largest com-mercial bank .

The month of November saw many events at IIF T including QuoVadis ,IIFT ’s annual man¬agement festival and the National Trade Symposium.

This issue provides fascinating readings on gold and how it has emerged as one of the safest and most liquid assets for investors in the present financial scenario, the role that banking could play in finan¬cial inclusion , China’s currency policy, RBI ’s monetary policy and a profound view of the trade-off between growth and infla-tion in India .

Hope you have a good read . Here’s wishing you a Merry Christmas and a very Happy New Year!!

Regards,

Team InFINeeti

» p.4 » p.11 » p.12

4 MONEY & POLICYA n a n a l y s i s o f R B I ’s m o n e t a r y p o l i c y a n d i t s i m p a c t o n t h e economy. The ar t ic le is an insight on the big 3 of e co n o m i c s - i n f l at i o n , u n e m p l o y m e n t a n d g r o w t h r a t e . ( B y D e e p a k A g a r w a l , M anish M anhar)

8 ECONOMICST h e d i l e m m a o f g r o w t h a n d i n f l a t i o n t r a d e o f f i s e x p l o r e d i n f u r t h e r d e t a i l w i t h a r e f e r e n c e t o p a s t and present s i tuat ion. (By Viks i t Arora)

10 AROUND THE GLOBEWe explore the Chinese c u r r e n c y a n d i t s valuat ions against the dol lar and the impac ts o n t h e i r e c o n o m y . (By J . R ahul )

12 BULLION WATCHAs we face an economic s l u m p h o w i s t h e market for the wor ld ’s favour i te metal . I s the gold market gl i tter ing. An ins ight into gold as an investor ’s paradise. ( B y P r i n c e S e t h i a , S idhar th Nanda)

14 BANKINGFi n a n c i a l i n c l u s i o n a s a p o l i c y , i s i t r e a l l y b a n k i n g f o r a l l ? W e a n a l y z e f i n a n c i a l inclusion policy and the p r o b l e m s a s s o c i a l t e d with it. Can RBI succeed i n i m p l e m e n t i n g t h i s p o l i c y ? (By R i tesh Gupta)

17 MARKET WATCHA r e f i n a n c i a l m a r k e t s in distress? We present a v i e w o n t h e g l o b a l e q u i t y m a r k e t s a n d t h e i r p e r f o r m a n c e s

over the last year and a n a l y z e t h e s c e n a r i o of the I ndian markets. (By Piyush M ar waha)

20 FUN WITH FINT e s t y o u r f i n a n c e k n o w l e d g e w i t h a n i n t r i g u i n g s e t o f q u e s t i o n s . (By J . R ahul )

REGULARS

17 Market Watch

18 Monthly Chronicles

20 Fun with Fin

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

2 3From the Editor ’s DeskTeam I nFINeet i CONTENTS

E D I TO R - I N - C H I E F

Soumya J yot i Sen

E D I TO R I A L B OA R D

Rohit K hattar

Piyush Mar waha

R itesh Gupta

Sourav Dutta

D E S I G N

Team I nFINeet i

F E E D B AC K / Q U E R I E S

inf ineet i@i i f t .ac. in

inf ineet i@gmai l .com

P u b l i s h e d m o n t h l y b y s t u d e n t s o f I n d i a n I n s t i t u t e o f F o r e i g n Tr a d e , N e w D e l h i a n d Kolk ata

ALL RIGHTS RESER VED

HEllO Friends,

We are pleased to present to you the December 2011 edition of InFINeeti . The financial world has undergone many changes since the last issue . On the global front, S&P downgraded the U.S long-term debt rating to AA+ with a negative outlook . The crisis in Europe continues to loom large . The most recent attempt to salvage the crisis saw the European leaders divided on the issue of tighter fiscal integration within the EU. Closer to home , Moody’s downgraded S tate Bank of India’s credit rating citing “modest ” capital and weak-ening asset quality of the country’s largest com-mercial bank .

The month of November saw many events at IIF T including QuoVadis ,IIFT ’s annual man¬agement festival and the National Trade Symposium.

This issue provides fascinating readings on gold and how it has emerged as one of the safest and most liquid assets for investors in the present financial scenario, the role that banking could play in finan¬cial inclusion , China’s currency policy, RBI ’s monetary policy and a profound view of the trade-off between growth and infla-tion in India .

Hope you have a good read . Here’s wishing you a Merry Christmas and a very Happy New Year!!

Regards,

Team InFINeeti

» p.4 » p.11 » p.12

4 MONEY & POLICYA n a n a l y s i s o f R B I ’s m o n e t a r y p o l i c y a n d i t s i m p a c t o n t h e economy. The ar t ic le is an insight on the big 3 of e co n o m i c s - i n f l at i o n , u n e m p l o y m e n t a n d g r o w t h r a t e . ( B y D e e p a k A g a r w a l , M anish M anhar)

8 ECONOMICST h e d i l e m m a o f g r o w t h a n d i n f l a t i o n t r a d e o f f i s e x p l o r e d i n f u r t h e r d e t a i l w i t h a r e f e r e n c e t o p a s t and present s i tuat ion. (By Viks i t Arora)

10 AROUND THE GLOBEWe explore the Chinese c u r r e n c y a n d i t s valuat ions against the dol lar and the impac ts o n t h e i r e c o n o m y . (By J . R ahul )

12 BULLION WATCHAs we face an economic s l u m p h o w i s t h e market for the wor ld ’s favour i te metal . I s the gold market gl i tter ing. An ins ight into gold as an investor ’s paradise. ( B y P r i n c e S e t h i a , S idhar th Nanda)

14 BANKINGFi n a n c i a l i n c l u s i o n a s a p o l i c y , i s i t r e a l l y b a n k i n g f o r a l l ? W e a n a l y z e f i n a n c i a l inclusion policy and the p r o b l e m s a s s o c i a l t e d with it. Can RBI succeed i n i m p l e m e n t i n g t h i s p o l i c y ? (By R i tesh Gupta)

17 MARKET WATCHA r e f i n a n c i a l m a r k e t s in distress? We present a v i e w o n t h e g l o b a l e q u i t y m a r k e t s a n d t h e i r p e r f o r m a n c e s

over the last year and a n a l y z e t h e s c e n a r i o of the I ndian markets. (By Piyush M ar waha)

20 FUN WITH FINT e s t y o u r f i n a n c e k n o w l e d g e w i t h a n i n t r i g u i n g s e t o f q u e s t i o n s . (By J . R ahul )

REGULARS

17 Market Watch

18 Monthly Chronicles

20 Fun with Fin

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

2 3From the Editor ’s DeskTeam I nFINeet i CONTENTS

RBI ’s M onetar y Pol ic y : I mpac t on I ndian EconomyBy Deepak Agar wal and Manish Manhar( The authors are students of I IM -B)

According to the RBI Governor the new policy has been formulated on the basis of 3 factors

1 . The eve r i nc reas ing commod i t y p r i ces

2 . F l u c t ua t i o n s i n t h e r a t e o f I n f l a t i o n

3 . E x p e c t a t i o n s o f d e m a n d r e d u c t i o n

Market React ion to the Recent Rate Hikes

1 . The benchma r k 7 .80 pe r cen t , 2021 , bond y ie ld rose by 2 bas is po in ts to 8.35 pe r cen t a f t e r t h e po l i c y announcemen t .

2 . The ma in sha re i ndex was down 0 .4 percent and reacted l i t t le to pol icy measures.

3. The benchmark 5-year swap rate remained b road l y unchanged a t 7 .72 pe rcen t a f t e r fa l l ing sharp ly before the pol icy announce-men t , t he 1 -yea r swap ra t e t oo he l d i t s g r o und a t 7 .99 pe r c en t , d ea l e r s s a i d .

A f t e r hav i ng a l ook a t t he ma r ke t sen -t imen t s l e t u s ana l y se t he cu r r en t s ce -na r i o and t he reasons beh ind t he same .

D i lemma of RBI

The RBI at the most can cont ro l on ly 2 var i-ables of the “ impossib le t r in i ty ” . RBI’s reac-t ions to these var iab les are prov ided below:

1 . Core In f la t ion

In f la t i onary p ressures in Ind ia were in i -t ia l ly t r iggered by a supply shock from poor monsoons in 2009, wh ich led to a r i se in food pr ices. R is ing o i l and commodi ty p r ices too exer ted pressure on in f la t ion . This warranted monetary t ightening, which the RBI in i t ia ted through a 25 basis points h ike in March 2010,ended wi th WPI in f la-t ion a t 9.73% desp i te twe lve ra te s ince March 2010.

Of la te, in f la t ion has become genera l ized, wi th r is ing core in f la t ion and upward pres-su re on wages . Aga ins t t h i s backd rop , there is hard ly any doubt that the RBI wi l l cont inue to ra ise rates. The RBI chose the tact ic of increasing rates in baby steps with a sharper 50 basis points rate hike in repo and reverse repo rates.

Out look: There appears to be no resp i te from high inf lat ion. Besides the supply-side the demand-side pressures have also exac-erbated sharply. Inf lat ion wi l l remain high in 2011-12 and outs ide RBI 's comfor t zone,

re f lect ing s t rong pers is tence. Upside r isks pe rs i s t f rom h igher commod i t y , food and meta l pr ices. Therefore, we expect average in f la t ion in 2011-12 to be in the range of 7.5-8.0 %.

2. In terest Rates

The Reserve Bank of India (RBI) hiked the repo rate by 50 basis points (bps) to 8.5% on 24th october ,2011. Wi th a change in the operat ing procedure, the reverse repo rate would be f ixed at 100 bps below the repo rate and the marginal standing faci l i ty (MSF) rate at 100 bps above i t .

Future Pro ject ion

One of the b iggest r isks to Ind ia is that the country is not complete ly re l iant on i ts own energy ou tpu t and hence have to impor t more than 70 percent of crude oi l f rom GCC coun t r ies and o the r OPEC members . I t ’ s expected that the g loba l economic recov-ery would not s ta l l but the pace wi l l come down mos t impo r t an t l y when t he Un i t ed States has stepped up i ts ef for ts to br ing down the f i sca l de f i c i t t o 4 .1 pe rcen t by 2014 . Neve r t he l e ss , t he r ea l e conom i c output could remain under pressure due to the e f fec t o f increas ing government debt .Ind ia ’s s tock o f money fo r the las t th ree f isca l years, which reverberated above 20 per cent is now fa l l ing back to 15 per cent , and i t shows tha t RBI ’s ac t ions in po l i cy ra te are work ing, which means that mone-tary pol icy has a ef fect on the core in f la-t ion problem and would impact the demand side but i t is not susta inable as the govern-ment’s borrowing p lans are on t rack.

Lower money supply has s ide ef fects too as i t wi l l increase the cost of credit further, and i t wi l l reduce the access to credit. Moreover, the s tock markets could not funct ion prop-e r l y i n t h i s env i r onmen t s i nce t he eco-nomic ac t i v i t y dec l ines , wh ich w i l l even-tual ly reduce the va lue of people’s re t i re-ment sav ings. However , the RBI has only one choice - t ight monetary pol icy to tame in f la t ion by g iv ing up the Ind ia’s ambi t ions of double d ig i t economic growth.

3. Economic Growth Rate and Unemployment

GDP growth s lowed to 6.95 per cent in the second quar ter of 2011-12.

For 2010-11 as a who le , g ross domest ic product (GDP) grew by 8.5 per cent f rom 8.0 per cent a year ear l ie r due to bet ter pe r f o rmance o f ag r i cu l t u re , cons t ruc t i on and f inancial services. However, the current quar ter has been the weakest in the last 2 years.GDP growth is expected to moderate in 2011-12 to 7-7.5% due to h igh in f la t ion and r is ing in terest ra tes.

Toge ther they a re expec ted to pu l l down i n v e s t m e n t a n d c o n s u m p t i o n g r o w t h . Agr icu l ture, in sp i te of a normal monsoon, wi l l dec l ine due to a h igh base.

Current Scenar io

India is current ly s t ruggl ing f rom an in f la-t ionary spira l due to which centra l bank has taken an ant i- in f la t ionary s tance which has hi t domest ic growth. Al l major indicators are hint ing towards inf la t ion f rom al l d i rect ions.

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

4 5MONEY AND POLICY MONEY AND POLICY

RBI ’s Monetar y Pol ic y : I mpac t on I ndian EconomyBy Deepak Agar wal and Manish Manhar( The authors are students of I IM -B)

According to the RBI Governor the new policy has been formulated on the basis of 3 factors

1 . The eve r i nc reas ing commod i t y p r i ces

2 . F l u c t ua t i o n s i n t h e r a t e o f I n f l a t i o n

3 . E x p e c t a t i o n s o f d e m a n d r e d u c t i o n

Market React ion to the Recent Rate Hikes

1 . The benchma r k 7 .80 pe r cen t , 2021 , bond y ie ld rose by 2 bas is po in ts to 8.35 pe r cen t a f t e r t h e po l i c y announcemen t .

2 . The ma in sha re i ndex was down 0 .4 percent and reacted l i t t le to pol icy measures.

3. The benchmark 5-year swap rate remained b road l y unchanged a t 7 .72 pe rcen t a f t e r fa l l ing sharp ly before the pol icy announce-men t , t he 1 -yea r swap ra t e t oo he l d i t s g r o und a t 7 .99 pe r c en t , d ea l e r s s a i d .

A f t e r hav i ng a l ook a t t he ma r ke t sen -t imen t s l e t u s ana l y se t he cu r r en t s ce -na r i o and t he reasons beh ind t he same .

D i lemma of RBI

The RBI at the most can cont ro l on ly 2 var i-ables of the “ impossib le t r in i ty ” . RBI’s reac-t ions to these var iab les are prov ided below:

1 . Core In f la t ion

In f la t i onary p ressures in Ind ia were in i -t ia l ly t r iggered by a supply shock from poor monsoons in 2009, wh ich led to a r i se in food pr ices. R is ing o i l and commodi ty p r ices too exer ted pressure on in f la t ion . This warranted monetary t ightening, which the RBI in i t ia ted through a 25 basis points h ike in March 2010,ended wi th WPI in f la-t ion a t 9.73% desp i te twe lve ra te s ince March 2010.

Of la te, in f la t ion has become genera l ized, wi th r is ing core in f la t ion and upward pres-su re on wages . Aga ins t t h i s backd rop , there is hard ly any doubt that the RBI wi l l cont inue to ra ise rates. The RBI chose the tact ic of increasing rates in baby steps with a sharper 50 basis points rate hike in repo and reverse repo rates.

Out look: There appears to be no resp i te from high inf lat ion. Besides the supply-side the demand-side pressures have also exac-erbated sharply. Inf lat ion wi l l remain high in 2011-12 and outs ide RBI 's comfor t zone,

re f lect ing s t rong pers is tence. Upside r isks pe rs i s t f rom h igher commod i t y , food and meta l pr ices. Therefore, we expect average in f la t ion in 2011-12 to be in the range of 7.5-8.0 %.

2. In terest Rates

The Reserve Bank of India (RBI) hiked the repo rate by 50 basis points (bps) to 8.5% on 24th october ,2011. Wi th a change in the operat ing procedure, the reverse repo rate would be f ixed at 100 bps below the repo rate and the marginal standing faci l i ty (MSF) rate at 100 bps above i t .

Future Pro ject ion

One of the b iggest r isks to Ind ia is that the country is not complete ly re l iant on i ts own energy ou tpu t and hence have to impor t more than 70 percent of crude oi l f rom GCC coun t r ies and o the r OPEC members . I t ’ s expected that the g loba l economic recov-ery would not s ta l l but the pace wi l l come down mos t impo r t an t l y when t he Un i t ed States has stepped up i ts ef for ts to br ing down the f i sca l de f i c i t t o 4 .1 pe rcen t by 2014 . Neve r t he l e ss , t he r ea l e conom i c output could remain under pressure due to the e f fec t o f increas ing government debt .Ind ia ’s s tock o f money fo r the las t th ree f isca l years, which reverberated above 20 per cent is now fa l l ing back to 15 per cent , and i t shows tha t RBI ’s ac t ions in po l i cy ra te are work ing, which means that mone-tary pol icy has a ef fect on the core in f la-t ion problem and would impact the demand side but i t is not susta inable as the govern-ment’s borrowing p lans are on t rack.

Lower money supply has s ide ef fects too as i t wi l l increase the cost of credit further, and i t wi l l reduce the access to credit. Moreover, the s tock markets could not funct ion prop-e r l y i n t h i s env i r onmen t s i nce t he eco-nomic ac t i v i t y dec l ines , wh ich w i l l even-tual ly reduce the va lue of people’s re t i re-ment sav ings. However , the RBI has only one choice - t ight monetary pol icy to tame in f la t ion by g iv ing up the Ind ia’s ambi t ions of double d ig i t economic growth.

3. Economic Growth Rate and Unemployment

GDP growth s lowed to 6.95 per cent in the second quar ter of 2011-12.

For 2010-11 as a who le , g ross domest ic product (GDP) grew by 8.5 per cent f rom 8.0 per cent a year ear l ie r due to bet ter pe r f o rmance o f ag r i cu l t u re , cons t ruc t i on and f inancial services. However, the current quar ter has been the weakest in the last 2 years.GDP growth is expected to moderate in 2011-12 to 7-7.5% due to h igh in f la t ion and r is ing in terest ra tes.

Toge ther they a re expec ted to pu l l down i n v e s t m e n t a n d c o n s u m p t i o n g r o w t h . Agr icu l ture, in sp i te of a normal monsoon, wi l l dec l ine due to a h igh base.

Current Scenar io

India is current ly s t ruggl ing f rom an in f la-t ionary spira l due to which centra l bank has taken an ant i- in f la t ionary s tance which has hi t domest ic growth. Al l major indicators are hint ing towards inf la t ion f rom al l d i rect ions.

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

4 5MONEY AND POLICY MONEY AND POLICY

in f lat ion which current ly stands at 9.36% in october , a lmost double the to lerable l imi t . In f la t ion i s s t i l l ou ts ide the comfor t zone despi te the rate h ike by RBI in the la t 18 mon ths . RB I has even adv i sed banks to come up wi th bet ter r isk management capa-bi l i t ies i as there might be deter iorat ion in asset qual i ty due to h igh in terest ra tes.

Ra is ing key ra tes aga in and aga in , in f la-t i on rema ins a t an uncomfo r t ab l e l eve l . Wholesale pr ice based food inf la t ion was at 11.43% in October . I t is increas ing despi te hav ing a h igh base o f 22 .93% las t yea r wh ich t rans la tes in to an overa l l i nc rease of 32% in two years, thus showing a very gr im p ic ture.

Monetary Pol icy of Ind ia

Government’s dec is ion of increas ing d iesel pr ices by Rs 3 has added more inf la t ionary f i re. This increment is just i f iable in the l ight that in ternat ional crude pr ices have stayed above $100 s ince las t June. Exper ts say th is increment in fue l pr ice is go ing to add 60 to 70 basis points to headl ine in f la t ion.

Non- food manu fac tu r i ng i n f l a t i on was a t 8.5% -way above the medium term t rend of 4%. This is a cause of concern because of i ts non-volat i le nature and i t c lear ly shows that f rom suppl iers and producers the costs are being f ina l ly passed down the chain.

Policy Makers on the Scenario

1 . RBI Pol icy

In i ts mid-quar ter ly monetary pol icy rev iew RBI has clearly mentioned its anti-inflationary

basis points in next one or two months due to recent increment in fuel pr ices. RBI has c lear ly s ta ted that s lowdown in shor t term in unavoidable s ince headl ine in f la t ion is s t i l l outs ide the comfor tab le zone.

RBI has ind icated that the in ter- l inkage of Ind ian economy wi th in ternat ional macro-economic changes poses r isks. Sovere ign deb t r i sks a re s t i l l l oom ing and g row th is moderat ing in due to f isca l consol ida-t ion s tance o f many count r ies . St i l l h igh commodi ty pr ices in in ternat iona l market and o i l pr ices wi l l be ref lected in in f la t ion numbers in emerging market economies.

Lead indicators such as GDP numbers, I IP numbers are a l l ind icat ing to a s lowdown in the nea r te rm. I IP number a l so te l l s a d i f fe ren t s to ry ; new base o f 2004-05 reveals growth of above 8% in both halves dur ing th is year whi le as per the o ld base i t showed a decelerat ion of 5.5% from 10% in the second hal f f rom the f i rs t hal f . So a doubt somewhere creeps in as to whether a l l these number games are due to d i f fer-ent bases.

The ef fects of monetary act ions taken by RB I a re show ing some impac t . Recen t data for the month of June has shown that one o f the in teres t ra te sens i t i ve areas- Au tomob i l es , has shown dec l i ne i n t he growth rate. Al l the 11 major manufacturers have shown decl ine in sa le of 4% due to increase in in terest rates i i i as wel l as h igh fue l pr ices. I f in ternat ional market pr ices of commodi t ies eased up, i t would g ive a re l ie f to Ind ian f i rmsiv.

So, on 17th of June when RBI increased

cont ro l in f la t ion. They should have wai ted for their ear l ier moves to show some results be fo re go ing ahead w i th th i s i nc remen t . This forecast of below normal monsoon wi l l fur ther fuel expectat ions and wi l l nul l i fy the ef fect o f increase in in terest ra tes in tend-ing to curb demand s ide in f la t ion.

So, the RBI has a twofo ld chal lenge before i t - mainta in ing i ts s tance of ant i- in f la t ion as wel l as keeping the growth pace smooth in the whole scenar io of changes in wor ld economy.

2. Government Outlook of the Pol icy

The f inance min is ter has sa id that a t ight monetary po l icy over an ex tended per iod could impact the country’s economic momen-tum – ending up by moderat ing growth rate. Due to the rate h ikes the investment dec i-sions might be postponed – affect is already visible in the Real Estate and Auto Industry. The governmen t exper t s a re o f the v iew that RBI should wai t for some more g lobal data before tak ing any fur ther decis ions on the same.

V i e w s o n G o v e r n m e n t expendi ture

The centra l bank’s abi l i ty to cont ro l in f la-t ion and in f la t ionary expectat ions is in f lu-enced by the s tance o f the f i sca l po l i cy . Excess ive government expendi ture used to prop up consumpt ion demand, ra ther than inves tmen t (c rea t ing p roduc t i ve asse ts) , runs the r isk of r is ing demand beyond the potent ia l o f the economy, thus encourag-ing inf lat ion. Whi le government expendi ture

growth has s lowed down in recent quar ters, the f iscal st imulus that had been undertaken during 2008-09 and 2009-10 when private consumpt ion demand (which accounts fo r c lose to 60 per cent of aggregate demand) led to a sharp increase in nominal income, thereby r is ing the r isk to in f la t ion, as con-sumpt ion demand outpaced supply poten-t ia l , especia l ly in agr icu l ture. F isca l s t im-ulus focused on investment t rends to ra ise the supply potent ial of the economy, thereby exer t ing downward pressure on in f la t ion.

The Fina l Gyaan

The monetary pol icy impacts in f la t ion wi th a lag, which cou ld be as long as a year . So the t igh ten ing that was in i t ia ted s ince March 2010 is l ike ly to come in to ef fect in the current f isca l .

Also the inf lat ion-reducing ef fect of interest rate hikes also depends on the f iscal stance. This impl ies that the f iscal def ic i t should be kept under contro l to complement the RBI’s demand-moderat ing act ions.

Las t ly the behav iour o f commodi ty pr ices and food in f la t ion (cont ingent on monsoon patterns) wil l be cri t ical in shaping the inf la-t ion t ra jectory.

And fo r tuna te ly o r un fo r tuna te ly , none o f these factors can be cont ro l led by mone-tary t ightening.

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

6 7MONEY AND POLICY MONEY AND POLICY

in f lat ion which current ly stands at 9.36% in october , a lmost double the to lerable l imi t . In f la t ion i s s t i l l ou ts ide the comfor t zone despi te the rate h ike by RBI in the la t 18 mon ths . RB I has even adv i sed banks to come up wi th bet ter r isk management capa-bi l i t ies i as there might be deter iorat ion in asset qual i ty due to h igh in terest ra tes.

Ra is ing key ra tes aga in and aga in , in f la-t i on rema ins a t an uncomfo r t ab l e l eve l . Wholesale pr ice based food inf la t ion was at 11.43% in October . I t is increas ing despi te hav ing a h igh base o f 22 .93% las t yea r wh ich t rans la tes in to an overa l l i nc rease of 32% in two years, thus showing a very gr im p ic ture.

Monetary Pol icy of Ind ia

Government’s dec is ion of increas ing d iesel pr ices by Rs 3 has added more inf la t ionary f i re. This increment is just i f iable in the l ight that in ternat ional crude pr ices have stayed above $100 s ince las t June. Exper ts say th is increment in fue l pr ice is go ing to add 60 to 70 basis points to headl ine in f la t ion.

Non- food manu fac tu r i ng i n f l a t i on was a t 8.5% -way above the medium term t rend of 4%. This is a cause of concern because of i ts non-volat i le nature and i t c lear ly shows that f rom suppl iers and producers the costs are being f ina l ly passed down the chain.

Policy Makers on the Scenario

1 . RBI Pol icy

In i ts mid-quar ter ly monetary pol icy rev iew RBI has clearly mentioned its anti-inflationary

basis points in next one or two months due to recent increment in fuel pr ices. RBI has c lear ly s ta ted that s lowdown in shor t term in unavoidable s ince headl ine in f la t ion is s t i l l outs ide the comfor tab le zone.

RBI has ind icated that the in ter- l inkage of Ind ian economy wi th in ternat ional macro-economic changes poses r isks. Sovere ign deb t r i sks a re s t i l l l oom ing and g row th is moderat ing in due to f isca l consol ida-t ion s tance o f many count r ies . St i l l h igh commodi ty pr ices in in ternat iona l market and o i l pr ices wi l l be ref lected in in f la t ion numbers in emerging market economies.

Lead indicators such as GDP numbers, I IP numbers are a l l ind icat ing to a s lowdown in the nea r te rm. I IP number a l so te l l s a d i f fe ren t s to ry ; new base o f 2004-05 reveals growth of above 8% in both halves dur ing th is year whi le as per the o ld base i t showed a decelerat ion of 5.5% from 10% in the second hal f f rom the f i rs t hal f . So a doubt somewhere creeps in as to whether a l l these number games are due to d i f fer-ent bases.

The ef fects of monetary act ions taken by RB I a re show ing some impac t . Recen t data for the month of June has shown that one o f the in teres t ra te sens i t i ve areas- Au tomob i l es , has shown dec l i ne i n t he growth rate. Al l the 11 major manufacturers have shown decl ine in sa le of 4% due to increase in in terest rates i i i as wel l as h igh fue l pr ices. I f in ternat ional market pr ices of commodi t ies eased up, i t would g ive a re l ie f to Ind ian f i rmsiv.

So, on 17th of June when RBI increased

cont ro l in f la t ion. They should have wai ted for their ear l ier moves to show some results be fo re go ing ahead w i th th i s i nc remen t . This forecast of below normal monsoon wi l l fur ther fuel expectat ions and wi l l nul l i fy the ef fect o f increase in in terest ra tes in tend-ing to curb demand s ide in f la t ion.

So, the RBI has a twofo ld chal lenge before i t - mainta in ing i ts s tance of ant i- in f la t ion as wel l as keeping the growth pace smooth in the whole scenar io of changes in wor ld economy.

2. Government Outlook of the Pol icy

The f inance min is ter has sa id that a t ight monetary po l icy over an ex tended per iod could impact the country’s economic momen-tum – ending up by moderat ing growth rate. Due to the rate h ikes the investment dec i-sions might be postponed – affect is already visible in the Real Estate and Auto Industry. The governmen t exper t s a re o f the v iew that RBI should wai t for some more g lobal data before tak ing any fur ther decis ions on the same.

V i e w s o n G o v e r n m e n t expendi ture

The centra l bank’s abi l i ty to cont ro l in f la-t ion and in f la t ionary expectat ions is in f lu-enced by the s tance o f the f i sca l po l i cy . Excess ive government expendi ture used to prop up consumpt ion demand, ra ther than inves tmen t (c rea t ing p roduc t i ve asse ts) , runs the r isk of r is ing demand beyond the potent ia l o f the economy, thus encourag-ing inf lat ion. Whi le government expendi ture

growth has s lowed down in recent quar ters, the f iscal st imulus that had been undertaken during 2008-09 and 2009-10 when private consumpt ion demand (which accounts fo r c lose to 60 per cent of aggregate demand) led to a sharp increase in nominal income, thereby r is ing the r isk to in f la t ion, as con-sumpt ion demand outpaced supply poten-t ia l , especia l ly in agr icu l ture. F isca l s t im-ulus focused on investment t rends to ra ise the supply potent ial of the economy, thereby exer t ing downward pressure on in f la t ion.

The Fina l Gyaan

The monetary pol icy impacts in f la t ion wi th a lag, which cou ld be as long as a year . So the t igh ten ing that was in i t ia ted s ince March 2010 is l ike ly to come in to ef fect in the current f isca l .

Also the inf lat ion-reducing ef fect of interest rate hikes also depends on the f iscal stance. This impl ies that the f iscal def ic i t should be kept under contro l to complement the RBI’s demand-moderat ing act ions.

Las t ly the behav iour o f commodi ty pr ices and food in f la t ion (cont ingent on monsoon patterns) wil l be cri t ical in shaping the inf la-t ion t ra jectory.

And fo r tuna te ly o r un fo r tuna te ly , none o f these factors can be cont ro l led by mone-tary t ightening.

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

6 7MONEY AND POLICY MONEY AND POLICY

I nf lat ion and Growth trade - offBy Viks i t Arora( The author is a student of I IFT )

growth rate of -5.1 percent in October, s ig-n i f icant ly lower than what was recorded in the corresponding per iod last year . I t is a hamper ing sectors such as serv ice sector . But h ik ing in terest ra tes is unable to curb inf lat ion. So there is no evidence to l ink the inf lat ion with interest rate but there is lot to l ink the growth rate wi th the same pol icy.

The same l ink is ev ident in h is tory a lso. GDP g row th i n I nd ia a f t e r ave rag ing a t above 7% fo r t h ree consecu t i ve yea rs , 1994 to 1996, co l lapsed to an average of 5.1% ra te over the next s ix years , 1997 to 2002. The mirac le growth rate s tar ted from 2003 onwards. This take-off in Indian growth ra te was because of a la rge 450 bas i s po in t dec l i ne i n nomina l and rea l interest rates during 1999 to 2003 and the take down in growth took p lace because of a large increase in RBI’s monetary t ightning in the mid-1990s. In March 1994, when Dr .Rangara jan was the governor o f RBI , WPI in f la t ion moved to doub le d ig i t s . In response, RBI increased the cash reserve ra t io by 1 percen tage po in t to 15%, and as a resul t s ing le d ig i t WPI in f la t ion was reached to 5%.

We shou ld lea rn f rom h is to ry . Bu t the re is burden on learn ing espec ia l l y when i t means tha t po l i cy recommenda t ions can af fect the course of an economy and mi l-l ions of jobs are dependent on the r ight RBI

pol icy. Inf lat ion and lack of growth also hurts the poor the most . I t is nobody’s case that h igh in f la t ion should be a l lowed to pers is t and i t is everybody’s case that the inst ru-ments used to reduce in f l a t i on be appro-pr ia te i .e . the pol icy should be ef fect ive in achiev ing i ts goals.

Even only r ight pol icies cannot help. We need a boost f rom supply s ide a lso. The compo-nent o f in f la t ion tha t has pushed the WPI maximum has been the food pr ices. So con-trol l ing food inf lat ion is the f i rst step towards curb ing the in f la t ion in our country. There is need to check the susta inabi l i ty o f the agr i-cu l tura l sector as Ind ia is pr imar i ly depen-dent on agr icu l ture. Fol lowing are the some measures which can be taken to cur ta i l food in f la t ion keeping the in terest ra te at bay:

Enhancing the Product iv i ty of Farms

Indian agr icu l tu re s t i l l heav i ly depends on the monsoon, bad monsoons last year has cr ipp led the agr icu l tu re output growth and has resul ted in r ise in food pr ices. Chasing the monsoon each year i s un feas ib le . So improv ing the product iv i ty of our farms wi l l g ive a bet ter y ie ld and thus lower the pr ices of the food. A study predic ts that there is 6% increase in water consumpt ion by agr i-cu l tu re sec tor by 2025. So the b ig ques-t ion is how to y ie ld bet ter wi th less usage of water or resource in genera l?

First ly, pract ice of ef fect ive use of resources l ike water , energy etc. Predominant ly Indian agr icul ture system uses food i r r igat ion which consumes th ree t imes more wa te r than i t

I nfat ion is the ra te a t wh ich the leve l o f p r i ces fo r goods and serv ices are

r i s ing hence impac t ing the pu rchas ing power o f t he peop le wh i ch i s f a l l i ng . Genera l ly a develop ing country t r ies to mainta in in f la t ion rate at around 5-6%. High inf la t ion discourage investment and long term economic growth where as low inf la t ion can also cause problems for the economy. I t ind icates a s lowdown in the economy wi th problems such as unem-ployment , lower output and lower con-sumer conf idence.

To cont ro l in f la t ion the cent ra l bank t ight-ens the monetary pol icy by increas ing the in terest ra te. But an increase in the in ter-est rate curtai ls the investment and employ-ment leading to s lump in growth. There are two v iews regard ing the growth and in f la-t ion t rade-of f . One v iew says that h igher interest rate is desirable because i t helps to cont ro l in f la t ion and second v iew says that lower in terest ra te leads to bet ter growth. See ing the p rac t i ca l s i de , h i ghe r i n te r -est ra tes can lead to unemployment , so a person would prefer a low paying job wi th h igh in f la t ion rather than no job.

RBI has increased in teres t ra te 13 t imes s ince March 2010. I t has af fected Ind ia’s growth in many ways. The index of Industr ial p roduc t ion ( I IP) - a key ind ica to r o f the robustness of indust r ia l growth recorded a

ECONOMICS

use o f t read le pump i s bes t fo r sma l le r p lo ts. They are cost ef f ic ient and consume less energy and water.Secondly, investment in R&D in the agr icu l ture sector should be increased and made more ef fect ive.

I m p r o v i n g t h e P u b l i c Dis t r ibut ion System (PDS)

17.8 MT of wheat are ly ing wi th Food Corp of Ind ia (FCI) in open p l in ths but pr ices have esca la ted desp i t e t he huge bu f fe r s tock . A f resh es t ima te f rom the m in i s-t r y o f food p rocess ing says a whopp ing Rs 58,000 crore (Rs 580 bi l l ion) wor th of agr icu l ture food i tems get wasted in the country every year . So Ind ia seems to be a la rges t p roducer o f food p roduc ts bu t not the largest suppl ier . There has to be a comple te revamp in the cur rent supp ly chain system. First , procurement should be done wi thout in termediar ies & wi th com-p le te t ransparency . Second, Log is t i cs & Warehousing in which the system cal ls for huge investment should be looked in to.

I t is an opportuni ty for pol icymakers to r ise to this chal lenge and bring out comprehen-sive reforms agenda for agr icul ture, some-what ak in to the indust r ia l re form package of 1991, to ensure long-term food secu-r i ty to i ts people at a f fordable pr ices and in a sus ta inab le manner . Inc reas ing the in terest ra te wi l l not he lp in curb ing in f la-t ion, rather i t wi l l af fect the growth of India negat ively. There is need to implement the r ight pol icy and to reform agricul ture sector to curb the in f la t ion.

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

8 9ECONOMICS

I nf lat ion and Growth trade - offBy Viks i t Arora( The author is a student of I IFT )

growth rate of -5.1 percent in October, s ig-n i f icant ly lower than what was recorded in the corresponding per iod last year . I t is a hamper ing sectors such as serv ice sector . But h ik ing in terest ra tes is unable to curb inf lat ion. So there is no evidence to l ink the inf lat ion with interest rate but there is lot to l ink the growth rate wi th the same pol icy.

The same l ink is ev ident in h is tory a lso. GDP g row th i n I nd ia a f t e r ave rag ing a t above 7% fo r t h ree consecu t i ve yea rs , 1994 to 1996, co l lapsed to an average of 5.1% ra te over the next s ix years , 1997 to 2002. The mirac le growth rate s tar ted from 2003 onwards. This take-off in Indian growth ra te was because of a la rge 450 bas i s po in t dec l i ne i n nomina l and rea l interest rates during 1999 to 2003 and the take down in growth took p lace because of a large increase in RBI’s monetary t ightning in the mid-1990s. In March 1994, when Dr .Rangara jan was the governor o f RBI , WPI in f la t ion moved to doub le d ig i t s . In response, RBI increased the cash reserve ra t io by 1 percen tage po in t to 15%, and as a resul t s ing le d ig i t WPI in f la t ion was reached to 5%.

We shou ld lea rn f rom h is to ry . Bu t the re is burden on learn ing espec ia l l y when i t means tha t po l i cy recommenda t ions can af fect the course of an economy and mi l-l ions of jobs are dependent on the r ight RBI

pol icy. Inf lat ion and lack of growth also hurts the poor the most . I t is nobody’s case that h igh in f la t ion should be a l lowed to pers is t and i t is everybody’s case that the inst ru-ments used to reduce in f l a t i on be appro-pr ia te i .e . the pol icy should be ef fect ive in achiev ing i ts goals.

Even only r ight pol icies cannot help. We need a boost f rom supply s ide a lso. The compo-nent o f in f la t ion tha t has pushed the WPI maximum has been the food pr ices. So con-trol l ing food inf lat ion is the f i rst step towards curb ing the in f la t ion in our country. There is need to check the susta inabi l i ty o f the agr i-cu l tura l sector as Ind ia is pr imar i ly depen-dent on agr icu l ture. Fol lowing are the some measures which can be taken to cur ta i l food in f la t ion keeping the in terest ra te at bay:

Enhancing the Product iv i ty of Farms

Indian agr icu l tu re s t i l l heav i ly depends on the monsoon, bad monsoons last year has cr ipp led the agr icu l tu re output growth and has resul ted in r ise in food pr ices. Chasing the monsoon each year i s un feas ib le . So improv ing the product iv i ty of our farms wi l l g ive a bet ter y ie ld and thus lower the pr ices of the food. A study predic ts that there is 6% increase in water consumpt ion by agr i-cu l tu re sec tor by 2025. So the b ig ques-t ion is how to y ie ld bet ter wi th less usage of water or resource in genera l?

First ly, pract ice of ef fect ive use of resources l ike water , energy etc. Predominant ly Indian agr icul ture system uses food i r r igat ion which consumes th ree t imes more wa te r than i t

I nfat ion is the ra te a t wh ich the leve l o f p r i ces fo r goods and serv ices are

r i s ing hence impac t ing the pu rchas ing power o f t he peop le wh i ch i s f a l l i ng . Genera l ly a develop ing country t r ies to mainta in in f la t ion rate at around 5-6%. High inf la t ion discourage investment and long term economic growth where as low inf la t ion can also cause problems for the economy. I t ind icates a s lowdown in the economy wi th problems such as unem-ployment , lower output and lower con-sumer conf idence.

To cont ro l in f la t ion the cent ra l bank t ight-ens the monetary pol icy by increas ing the in terest ra te. But an increase in the in ter-est rate curtai ls the investment and employ-ment leading to s lump in growth. There are two v iews regard ing the growth and in f la-t ion t rade-of f . One v iew says that h igher interest rate is desirable because i t helps to cont ro l in f la t ion and second v iew says that lower in terest ra te leads to bet ter growth. See ing the p rac t i ca l s i de , h i ghe r i n te r -est ra tes can lead to unemployment , so a person would prefer a low paying job wi th h igh in f la t ion rather than no job.

RBI has increased in teres t ra te 13 t imes s ince March 2010. I t has af fected Ind ia’s growth in many ways. The index of Industr ial p roduc t ion ( I IP) - a key ind ica to r o f the robustness of indust r ia l growth recorded a

ECONOMICS

use o f t read le pump i s bes t fo r sma l le r p lo ts. They are cost ef f ic ient and consume less energy and water.Secondly, investment in R&D in the agr icu l ture sector should be increased and made more ef fect ive.

I m p r o v i n g t h e P u b l i c Dis t r ibut ion System (PDS)

17.8 MT of wheat are ly ing wi th Food Corp of Ind ia (FCI) in open p l in ths but pr ices have esca la ted desp i t e t he huge bu f fe r s tock . A f resh es t ima te f rom the m in i s-t r y o f food p rocess ing says a whopp ing Rs 58,000 crore (Rs 580 bi l l ion) wor th of agr icu l ture food i tems get wasted in the country every year . So Ind ia seems to be a la rges t p roducer o f food p roduc ts bu t not the largest suppl ier . There has to be a comple te revamp in the cur rent supp ly chain system. First , procurement should be done wi thout in termediar ies & wi th com-p le te t ransparency . Second, Log is t i cs & Warehousing in which the system cal ls for huge investment should be looked in to.

I t is an opportuni ty for pol icymakers to r ise to this chal lenge and bring out comprehen-sive reforms agenda for agr icul ture, some-what ak in to the indust r ia l re form package of 1991, to ensure long-term food secu-r i ty to i ts people at a f fordable pr ices and in a sus ta inab le manner . Inc reas ing the in terest ra te wi l l not he lp in curb ing in f la-t ion, rather i t wi l l af fect the growth of India negat ively. There is need to implement the r ight pol icy and to reform agricul ture sector to curb the in f la t ion.

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

8 9ECONOMICS

E x a s p e r a t i o n s u m s u p t h e U S

mindset so far as China’s stance

t o w a r d s p e g g i n g o f t h e r e n -

minbi (RMB) is concerned.

The Quest ion of ChinaBy J.R ahul ( The author is a student of I IFT )

China’s re luctance to a l low i ts currency to apprec iate v is-à-v is the dol lar is an

issue which has been ta lked about among the h ighest eche lons o f power . Hence, I t i s impera t ive to look a t th is s tand-of f by examin ing some key i ssues wh ich h igh-l ights the ra ison d’et re for China’s res is-tance to the incessant pressure p i led on by the U.S and other developed and develop-ing countr ies.

The Backdrop

At the outset , i t is qu i te s tagger ing to note the forex reserves of China which stands at 3.2 t r i l l ion dol lars. Keeping such huge hoards of do l lars is someth ing most countr ies would prefer , in normal t imes, as the USD, for a l l the t roubles i t has gone through is s t i l l the currency of choice .

What the U.S. Real ly Wants?

Exasperat ion sums up the US mindset as far as Ch ina ’s s tance towards pegg ing o f t he renminbi (RMB) is concerned. By doing such a th ing , Ch ina has no t a l l owed any scope for f luc tuat ions in i ts currency, which in turn

makes i t sa fe f rom the mach ina t ions o f the forces of demand and supply. The US, obv i-ously, does not want such a th ing, as because o f t he unde rva lua t i on o f t he RMB (as t he case current ly is) , US is get t ing less for i ts own ends. Unfor tunate ly , accord ing to some respected economists, an apprec ia t ion of the renminb i aga ins t the do l la r wou ld be d isas-t rous for the US, as i t would mean a dec l ine of the dol lar ’s s ta tus. So, in ef fect , the US is i tse l f in a quandary, as to whether to pressur-ize China in to opening up i ts currency or to a l low the status quo to prevai l .

What is Happening in China?

Ch ina i s no t a t a l l t oo e la ted by i t s huge r e s e r v e s . The p r o b l em i t f a c e s , i n t e r e s t -ing ly , is to increase the domest ic consump-t ion. Increas ing t rade surp lus impl ies China’s expor ts are far more than i ts impor ts . But the catch l ies in the fact that the cost of the factors of product ion, namely, land, labor , and other fac to rs such as env i ronment , a re ar t i f i c ia l l y low. Th is s i tua t ion has gradua l l y worsened, wi th the suic ides of 12 employees of Foxconn, a major suppl ier for Apple. As the wages star t inc reas ing , the cos t o f p roduc t ion w i l l r i se , and wi l l erode the advantage Chinese prod-ucts enjoy in the wor ld market .

RMB Internat ional izat ion

Ch ina ’ s d r eam o f mak i ng t he r enm inb i a

universa l currency is echoed in i ts at tempt to s tar t o f fshor ing of i ts currency. Recent ly , the cent ra l banks of many countr ies have star ted keep ing rese rves o f RMB. In the long te rm, China is hopefu l o f making renminbi one of the major currenc ies to r iva l the US dol lar and the euro. Beh ind th is is the mot ive to reduce i ts forex reserves, whose management is prov ing a tough nut to crack for the Chinese author i-t ies. As things stand, most importers of Chinese goods prefer to pay in dol lars, instead of the RMB, which is add ing to the a l ready b loated stockpi le of do l lars back home.

There have been s igns, though, that the RMB’s in ternat ional izat ion is do ing wel l . As compared to a t rade vo lume of 500 b i l l ion renminb i in 2010, the f i rs t four months a lone of th is f isca l year saw 530 bi l l ion renminbi being transacted.

Why is China so Wary?

The pegg ing makes Ch inese expo r t s cheap for the rest o f the wor ld, thus prov id ing them wi th a t remendous compet i t ive edge. But China is to ta l ly aware o f the murky wor ld o f f inan-c ia l markets. The major reason why i t is wary of U.S’s pressure tact ics is Japan’s downfa l l dur ing the Asian Financia l Cr is is of 1997. The US had employed s imi lar tact ics to force Japan to a l low the yen to be f ree of the US dol lar . As i t later became evident, Japan suffered the most dur ing the cr is is . Another reason for China’s re luctance to remove the pegging is i ts be l ie f tha t such tac t ics he lped her grow a t a grea t pace even dur ing the recen t g loba l f inanc ia l cr ises. The US bel ieves that , be ing a capi ta l is t economy, China must a l low i ts currency to be open to the f luc tuat ions of the market demand and supply, an argument China has turned a

AROUND THE GLOBE

deaf ear to.The argument that China pres-ents is rea l ly appal l ing, and doesn’ t present a good p ic ture for the US in par t icu lar , and the wor ld at large.

The Road Ahead

Despite severe pressure, China has somehow managed to keep i ts currency largely in tact from the market shenanigans. However, some senior o f f ic ia ls in China have s t ressed the impor tance o f reduc ing i t s fo rex reserves , and have advised the Government to expand i ts port fol io. That would ease the pressure on the i r reserves, and lead to red is t r ibut ion of resources. The recent wage hikes have gone some way in reducing the loss of product iv-i ty , and has shored the domest ic consump-t ion. How the US would v iew these changes in the fu ture is anybody’s guess.

Everyone knows that the wor ld economy is a funct ion of the pol i t ica l scenar ios prevai l ing across every nat ion. In such an atmosphere, China is a real aberrat ion, because i ts pol i t-i ca l s i tua t ion and cor respond ing economic condi t ions are someth ing which many c las-sical economists wouldn’t have envisaged. I t is, hence, mesmeriz ing to see China’s resur-gence on the wor ld s tage. I t remains to be seen how China shoulders i ts responsibi l i t ies, now that i t has become kind of a Messiah for the t roubled economies of Europe. Also, i t should expect more in tense pressure in the coming days f rom the remain ing economies to shed i ts bu l l-headedness, and come out in the open, and c la im i ts r ight o f be ing a superpower in a r ight fu l manner, instead of resor t ing to what can best be descr ibed as cross arm-twis t ing.

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

10 11AROUND THE GLOBE

E x a s p e r a t i o n s u m s u p t h e U S

mindset so far as China’s stance

t o w a r d s p e g g i n g o f t h e r e n -

minbi (RMB) is concerned.

The Quest ion of ChinaBy J.R ahul ( The author is a student of I IFT )

China’s re luctance to a l low i ts currency to apprec iate v is-à-v is the dol lar is an

issue which has been ta lked about among the h ighest eche lons o f power . Hence, I t i s impera t ive to look a t th is s tand-of f by examin ing some key i ssues wh ich h igh-l ights the ra ison d’et re for China’s res is-tance to the incessant pressure p i led on by the U.S and other developed and develop-ing countr ies.

The Backdrop

At the outset , i t is qu i te s tagger ing to note the forex reserves of China which stands at 3.2 t r i l l ion dol lars. Keeping such huge hoards of do l lars is someth ing most countr ies would prefer , in normal t imes, as the USD, for a l l the t roubles i t has gone through is s t i l l the currency of choice .

What the U.S. Real ly Wants?

Exasperat ion sums up the US mindset as far as Ch ina ’s s tance towards pegg ing o f t he renminbi (RMB) is concerned. By doing such a th ing , Ch ina has no t a l l owed any scope for f luc tuat ions in i ts currency, which in turn

makes i t sa fe f rom the mach ina t ions o f the forces of demand and supply. The US, obv i-ously, does not want such a th ing, as because o f t he unde rva lua t i on o f t he RMB (as t he case current ly is) , US is get t ing less for i ts own ends. Unfor tunate ly , accord ing to some respected economists, an apprec ia t ion of the renminb i aga ins t the do l la r wou ld be d isas-t rous for the US, as i t would mean a dec l ine of the dol lar ’s s ta tus. So, in ef fect , the US is i tse l f in a quandary, as to whether to pressur-ize China in to opening up i ts currency or to a l low the status quo to prevai l .

What is Happening in China?

Ch ina i s no t a t a l l t oo e la ted by i t s huge r e s e r v e s . The p r o b l em i t f a c e s , i n t e r e s t -ing ly , is to increase the domest ic consump-t ion. Increas ing t rade surp lus impl ies China’s expor ts are far more than i ts impor ts . But the catch l ies in the fact that the cost of the factors of product ion, namely, land, labor , and other fac to rs such as env i ronment , a re ar t i f i c ia l l y low. Th is s i tua t ion has gradua l l y worsened, wi th the suic ides of 12 employees of Foxconn, a major suppl ier for Apple. As the wages star t inc reas ing , the cos t o f p roduc t ion w i l l r i se , and wi l l erode the advantage Chinese prod-ucts enjoy in the wor ld market .

RMB Internat ional izat ion

Ch ina ’ s d r eam o f mak i ng t he r enm inb i a

universa l currency is echoed in i ts at tempt to s tar t o f fshor ing of i ts currency. Recent ly , the cent ra l banks of many countr ies have star ted keep ing rese rves o f RMB. In the long te rm, China is hopefu l o f making renminbi one of the major currenc ies to r iva l the US dol lar and the euro. Beh ind th is is the mot ive to reduce i ts forex reserves, whose management is prov ing a tough nut to crack for the Chinese author i-t ies. As things stand, most importers of Chinese goods prefer to pay in dol lars, instead of the RMB, which is add ing to the a l ready b loated stockpi le of do l lars back home.

There have been s igns, though, that the RMB’s in ternat ional izat ion is do ing wel l . As compared to a t rade vo lume of 500 b i l l ion renminb i in 2010, the f i rs t four months a lone of th is f isca l year saw 530 bi l l ion renminbi being transacted.

Why is China so Wary?

The pegg ing makes Ch inese expo r t s cheap for the rest o f the wor ld, thus prov id ing them wi th a t remendous compet i t ive edge. But China is to ta l ly aware o f the murky wor ld o f f inan-c ia l markets. The major reason why i t is wary of U.S’s pressure tact ics is Japan’s downfa l l dur ing the Asian Financia l Cr is is of 1997. The US had employed s imi lar tact ics to force Japan to a l low the yen to be f ree of the US dol lar . As i t later became evident, Japan suffered the most dur ing the cr is is . Another reason for China’s re luctance to remove the pegging is i ts be l ie f tha t such tac t ics he lped her grow a t a grea t pace even dur ing the recen t g loba l f inanc ia l cr ises. The US bel ieves that , be ing a capi ta l is t economy, China must a l low i ts currency to be open to the f luc tuat ions of the market demand and supply, an argument China has turned a

AROUND THE GLOBE

deaf ear to.The argument that China pres-ents is rea l ly appal l ing, and doesn’ t present a good p ic ture for the US in par t icu lar , and the wor ld at large.

The Road Ahead

Despite severe pressure, China has somehow managed to keep i ts currency largely in tact from the market shenanigans. However, some senior o f f ic ia ls in China have s t ressed the impor tance o f reduc ing i t s fo rex reserves , and have advised the Government to expand i ts port fol io. That would ease the pressure on the i r reserves, and lead to red is t r ibut ion of resources. The recent wage hikes have gone some way in reducing the loss of product iv-i ty , and has shored the domest ic consump-t ion. How the US would v iew these changes in the fu ture is anybody’s guess.

Everyone knows that the wor ld economy is a funct ion of the pol i t ica l scenar ios prevai l ing across every nat ion. In such an atmosphere, China is a real aberrat ion, because i ts pol i t-i ca l s i tua t ion and cor respond ing economic condi t ions are someth ing which many c las-sical economists wouldn’t have envisaged. I t is, hence, mesmeriz ing to see China’s resur-gence on the wor ld s tage. I t remains to be seen how China shoulders i ts responsibi l i t ies, now that i t has become kind of a Messiah for the t roubled economies of Europe. Also, i t should expect more in tense pressure in the coming days f rom the remain ing economies to shed i ts bu l l-headedness, and come out in the open, and c la im i ts r ight o f be ing a superpower in a r ight fu l manner, instead of resor t ing to what can best be descr ibed as cross arm-twis t ing.

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

10 11AROUND THE GLOBE

I s Gold an I nvestor ’s paradise?By Pr ince Sethia and S iddhar th Nanda( The authors are students of I IFT )

Hats of f to the l i t t le ye l low meta l which has managed to outsh ine the mi l l ions

of other investment opt ions avai lab le today. Wi th g lobal economy downsiz ing and in f la-t i o n r i s i n g , unemp l o ymen t r each i ng t he maximum leve l , and s tock markets put t ing a l l the i r e f fo r ts to te r ro r ise the inves tors , gold appears to be the “The Si lver Lin ing” to the mi l l ions of investors around the wor ld, be i t in the form of bul l ion, gold cert i f icates, m in ing-shares , der i va t i ves , ETFs o r even jewel lery.

Gold has emerged as one of the most l iqu id and stable assets for investment purposes. I f

Source: Wikipedia

had inves ted $10,000 in Janua ry 2001 , your 37.81 ounces o f the p rec ious meta l would have been wor th more than $69,000 by September 1 , 2011.

As i t is c lear ly v is ib le f rom the char t , there has been a considerable increase in the prices of go ld over the last 15 years ( f rom 1996-2011). Last 2 years have shown an increase of more than 100%! Such trends fuel more d e m a n d fo r g o l d , w h i c h , c o m b i n e d w i t h l imited produc t ion and supply, dr ive pr ices even h igher in a k ind of cyc le.

It also helps in diversifying an investor’s port-fol io as i t usual ly tends to progress opposi te the s tock market . Tradi t ional opt ions, such as bonds, proper ty and hedge funds of ten fa i l to hand le the marke t pan ic , and may sel l o f f wi th equi t ies in t imes of uncer ta inty. Por t fo l ios consis t ing of go ld may leverage th is uncer ta in ty and would be able to wi th-stand catast rophic economic s i tuat ions.

Go ld a lso en joys a tax- f ree l i f e in coun-t r i es such as UK, whe re go ld co ins l i ke Sovere igns and Br i t ann ias a re v iewed as cur rency and so are exempted f rom VAT.

P lus ,s ince the inc rease in va lue o f go ld has not been der ived by work, i t is not an income, thus there is no income tax e i ther . Si lver and other precious metals and do not en joy the same luxury.

Go ld en joys psycho log ica l appea l . 4000 years af ter i ts discovery, i t is st i l l perceived as one of the most prec ious meta ls . This means t ha t even du r i ng t imes o f c r i s i s , marke t fa i lu res and government de fau l t s , gold is l ike ly to reta in i ts va lue unl ike other inves tment op t ions . Th is makes go ld one o f the safes t co l la tera ls fo r the f inancers to count upon,enabl ing them to lend money wi thout much hesi ta t ion. Also i t is not t ied to any issuer’s l iab i l i ty un l ike bonds, but is ent i re ly the investor’s asset .

Gold is perceived as”The World’s Frightened Bunny ” . Wheneve r t he economy s i gna l s signs depression and downturn, the demand for gold has increased. During cr is is, people fear that the i r investment opt ions would be negat ively inf luenced and would not provide them wi th necessary funds hence they see go ld as an asse t wh i ch w i l l a lways buy b read . When Lehman B ro the r s dec l a red bankruptcy in September 2008, the pr ices of Gold rose by 27% f rom $728 per ounce to $922 in a mat ter of three days.

Gold is a lso used to protect the economy from r is ing inf lat ion by control l ing the coun-try’s currency against f luctuat ing dol lar. I t is inverse ly re la ted wi th dol lar , i .e . when the dol lar weakens, the pr ice of go ld wi l l r ise. Many currency t raders t reat gold as the 4th global currency, af ter Dol lar , Yen and Euro. The European demand for gold comes mainly

f rom German and Swiss investors because o f concerns over pub l i c deb t in the Euro zone and the potent ia l in f la t ionary impact of the European Centra l Bank's announce-ment o f the $1 t r i l l i on rescue package to purchase Euro zone government bonds to address the Greek debt cr is is .

A l though go ld i s a g rea t hedge in these r isky t ime, the problem is that i t is just – a hedge – and so when t imes are good for the economy, investments in gold can take a downhi l l path.Gold is today v iewed as a sa fe ty-net aga ins t po l i t i ca l and economic uncer ta in t ies, and i ts demand is h igh today only in such ci rcumstances. But when wor ld economy turns stable, gold pr ices languish, as i t happened in the 1980s to 1990s. This is why i t has been suggested that “ inves-tors should hold no more than 15% of the i r assets in go ld , and they shou ld buy on ly when the pr ice d ips because the pr ice o f the meta l is h is tor ica l ly h igh. ”

Gold has the advantage of be ing the most eas i l y comprehens ib le i nves tmen t t o the average investor, Consider ing that i ts value is set on an open market .As Marketwatch noted, “Gold is what a real bul l market looks l ike” . Under such c i rcumstances, the fu ture of go ld seems qui te ‘go lden’ indeed.

Long l ive the k ing of a l l investments!

BULLION WATCH

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

12 13BULLION WATCH

I s Gold an I nvestor ’s paradise?By Pr ince Sethia and S iddhar th Nanda( The authors are students of I IFT )

Hats of f to the l i t t le ye l low meta l which has managed to outsh ine the mi l l ions

of other investment opt ions avai lab le today. Wi th g lobal economy downsiz ing and in f la-t i o n r i s i n g , unemp l o ymen t r each i ng t he maximum leve l , and s tock markets put t ing a l l the i r e f fo r ts to te r ro r ise the inves tors , gold appears to be the “The Si lver Lin ing” to the mi l l ions of investors around the wor ld, be i t in the form of bul l ion, gold cert i f icates, m in ing-shares , der i va t i ves , ETFs o r even jewel lery.

Gold has emerged as one of the most l iqu id and stable assets for investment purposes. I f

Source: Wikipedia

had inves ted $10,000 in Janua ry 2001 , your 37.81 ounces o f the p rec ious meta l would have been wor th more than $69,000 by September 1 , 2011.

As i t is c lear ly v is ib le f rom the char t , there has been a considerable increase in the prices of go ld over the last 15 years ( f rom 1996-2011). Last 2 years have shown an increase of more than 100%! Such trends fuel more d e m a n d fo r g o l d , w h i c h , c o m b i n e d w i t h l imited produc t ion and supply, dr ive pr ices even h igher in a k ind of cyc le.

It also helps in diversifying an investor’s port-fol io as i t usual ly tends to progress opposi te the s tock market . Tradi t ional opt ions, such as bonds, proper ty and hedge funds of ten fa i l to hand le the marke t pan ic , and may sel l o f f wi th equi t ies in t imes of uncer ta inty. Por t fo l ios consis t ing of go ld may leverage th is uncer ta in ty and would be able to wi th-stand catast rophic economic s i tuat ions.

Go ld a lso en joys a tax- f ree l i f e in coun-t r i es such as UK, whe re go ld co ins l i ke Sovere igns and Br i t ann ias a re v iewed as cur rency and so are exempted f rom VAT.

P lus ,s ince the inc rease in va lue o f go ld has not been der ived by work, i t is not an income, thus there is no income tax e i ther . Si lver and other precious metals and do not en joy the same luxury.

Go ld en joys psycho log ica l appea l . 4000 years af ter i ts discovery, i t is st i l l perceived as one of the most prec ious meta ls . This means t ha t even du r i ng t imes o f c r i s i s , marke t fa i lu res and government de fau l t s , gold is l ike ly to reta in i ts va lue unl ike other inves tment op t ions . Th is makes go ld one o f the safes t co l la tera ls fo r the f inancers to count upon,enabl ing them to lend money wi thout much hesi ta t ion. Also i t is not t ied to any issuer’s l iab i l i ty un l ike bonds, but is ent i re ly the investor’s asset .

Gold is perceived as”The World’s Frightened Bunny ” . Wheneve r t he economy s i gna l s signs depression and downturn, the demand for gold has increased. During cr is is, people fear that the i r investment opt ions would be negat ively inf luenced and would not provide them wi th necessary funds hence they see go ld as an asse t wh i ch w i l l a lways buy b read . When Lehman B ro the r s dec l a red bankruptcy in September 2008, the pr ices of Gold rose by 27% f rom $728 per ounce to $922 in a mat ter of three days.

Gold is a lso used to protect the economy from r is ing inf lat ion by control l ing the coun-try’s currency against f luctuat ing dol lar. I t is inverse ly re la ted wi th dol lar , i .e . when the dol lar weakens, the pr ice of go ld wi l l r ise. Many currency t raders t reat gold as the 4th global currency, af ter Dol lar , Yen and Euro. The European demand for gold comes mainly

f rom German and Swiss investors because o f concerns over pub l i c deb t in the Euro zone and the potent ia l in f la t ionary impact of the European Centra l Bank's announce-ment o f the $1 t r i l l i on rescue package to purchase Euro zone government bonds to address the Greek debt cr is is .

A l though go ld i s a g rea t hedge in these r isky t ime, the problem is that i t is just – a hedge – and so when t imes are good for the economy, investments in gold can take a downhi l l path.Gold is today v iewed as a sa fe ty-net aga ins t po l i t i ca l and economic uncer ta in t ies, and i ts demand is h igh today only in such ci rcumstances. But when wor ld economy turns stable, gold pr ices languish, as i t happened in the 1980s to 1990s. This is why i t has been suggested that “ inves-tors should hold no more than 15% of the i r assets in go ld , and they shou ld buy on ly when the pr ice d ips because the pr ice o f the meta l is h is tor ica l ly h igh. ”

Gold has the advantage of be ing the most eas i l y comprehens ib le i nves tmen t t o the average investor, Consider ing that i ts value is set on an open market .As Marketwatch noted, “Gold is what a real bul l market looks l ike” . Under such c i rcumstances, the fu ture of go ld seems qui te ‘go lden’ indeed.

Long l ive the k ing of a l l investments!

BULLION WATCH

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

12 13BULLION WATCH

On October 3rd 2011, Kerala became the f i rs t Ind ian state to become f inancia l ly

inc lus ive which meant that every fami ly in the s ta te has a t leas t one bank accoun t . This becomes more impor tant when we see that the government and the RBI are t ry ing very hard to prov ide f inanc ia l serv ices to everyone for the past few years.

What is F inancia l Inc lus ion?

Acco rd i ng t o t he r epo r t b y Ranga ra j an commit tee on f inanc ia l Inc lus ion,

" Financial inclusion may be def ined as the process of ensur ing access to f inanc ia l

se rv i ces and t ime l y and adequa te c red i t where needed by vulnerable groups such as weaker sect ions and low income groups at an af fordable cost . ”

The f i n anc i a l se r v i ces i n c l ude sav i ngs , loans, insurance, credi t , payments etc. The f inanc ia l system has to prov ide i ts funct ion to those wi th low incomes, poor background etc. By prov id ing these serv ices, the a im is to help them come out of poverty. I t is a key de te rminan t fo r sus ta inab le and inc lus ive growth, wh ich is essent ia l fo r bu i ld ing an equ i t ab l e soc i e t y . I t i s impo r t an t as i t prov ides the poor to br ing thei r savings into the f inancial system. It gives them the option to remi t money to the i r fami l ies in v i l lages. I t is essent ia l to extend banking serv ices to

Financial Inclusion-Banking for All By R itesh Gupta( The author is a Student of I IFT )

the rura l h in ter land at the ear l ies t , so as to i n teg ra te those reg ions w i th the g row ing Ind ia.

I m p o r t a n c e o f F i n a n c i a l Inc lus ion

In a country where the per capi ta income is only Rs. 1 .75 lacs and 70% of people l ive in rura l areas, there is a need for people to save money espec ia l l y under the cu r ren t economic scenar io when the pr ices are very s teep. Prov id ing f inanc ia l serv ices to every c i t i z en becomes mo re impo r t an t . I t w i l l prov ide the c i t izens wi th var ious fac i l i t ies inc lud ing:

1 . M ic ro c red i t du r ing emergency : A t the t ime of emergency, bank can prov ide micro cred i t which can on ly be poss ib le i f bank uses f inanc ia l inc lus ion pract ica l ly .

2. Core banking so lut ions at Vi l lage Level : Now, mobi le revolut ion has reached up to t h e v i l l a g e s . W i t h f i n a n c i a l i n c l u s i o n movement, banks can provide ATM services and e-banking serv ices at the v i l lage level .

P r o b l e m s w i t h F i n a n c i a l Inc lus ion

The RBI and the government are t ry ing to prov ide f inanc ia l serv ices to every c i t izen for a long t ime but there has been issues

wh ich keeps pu l l ing i t back . Some o f the problems which are hamper ing the progress are:

F inancia l exc lus ion: F inancia l serv ices are used on ly by a sect ion o f the popu la t ion. There is demand for these serv ices but i t has not been prov ided as much as i t should have been. People l iv ing in the rura l areas or those who l ive in the p laces wi th harsh c l imat ic condi t ions are those who genera l ly face the issues with banking services. These lead them to rely on informal sector for their f i nanc i ng wh i ch i s usua l l y a t exo rb i t an t ra tes. These lead to a v ic ious cyc le. F i rs t , h i gh cos t o f f i nance imp l i es tha t a poo r person has to earn much more than someone who has access t o l owe r cos t f i nance . Second, the major por t ion of the earnings is paid to the moneylender and the person can never come out of the pover ty .

High cost : I t has been seen that the poor

l i v i ng i n r u r a l a r eas do no t u t i l i z e t he f inancial services as they f ind these services cost ly. Hence, even i f f inancia l serv ices are ava i lab le , the h igh costs deter them f rom access.

Non-price barriers: Access to formal f inancial s e r v i c e s r e q u i r e s d o c umen t s o f p r o o f rega rd ing pe rsons ’ i den t i t y , i ncome e t c . General ly the poor people do not have these documents and thus are excluded from these serv ices. High d is tance between the bank and res idence, poor in f rast ructure etc a lso prove to be a h indrance.

B e h a v i o u r a l a s p e c t s : D i f f i c u l t y i n understanding language, var ious documents and cond i t i ons t ha t come w i t h f i nanc i a l se r v i ces e t c . a l so p rove t o be a ma jo r deter rent for the people.

Steps taken by RBI

No f r i l l accounts: RBI has asked banks to of fer sav ings account which a l lows people to open an account without any or negl ig ible balance. The account is wi thout any other fac i l i t ies leading to lower costs for the bank and the ind iv idual . The number of no-f r i l ls account has increased in publ ic sector banks f rom about 0.4 mi l l ion to 6 mi l l ion between March 2006 and March 2007.

Use of Regional language: The Banks are requi red to prov ide a l l the mater ia l re la ted to opening accounts, d isc losures etc in the reg ional languages.

Simple KYC Norms: To ensure that persons belonging to low income groups do not face

BANKING

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

14 15BANKING

On October 3rd 2011, Kerala became the f i rs t Ind ian state to become f inancia l ly

inc lus ive which meant that every fami ly in the s ta te has a t leas t one bank accoun t . This becomes more impor tant when we see that the government and the RBI are t ry ing very hard to prov ide f inanc ia l serv ices to everyone for the past few years.

What is F inancia l Inc lus ion?

Acco rd i ng t o t he r epo r t b y Ranga ra j an commit tee on f inanc ia l Inc lus ion,

" Financial inclusion may be def ined as the process of ensur ing access to f inanc ia l

se rv i ces and t ime l y and adequa te c red i t where needed by vulnerable groups such as weaker sect ions and low income groups at an af fordable cost . ”

The f i n anc i a l se r v i ces i n c l ude sav i ngs , loans, insurance, credi t , payments etc. The f inanc ia l system has to prov ide i ts funct ion to those wi th low incomes, poor background etc. By prov id ing these serv ices, the a im is to help them come out of poverty. I t is a key de te rminan t fo r sus ta inab le and inc lus ive growth, wh ich is essent ia l fo r bu i ld ing an equ i t ab l e soc i e t y . I t i s impo r t an t as i t prov ides the poor to br ing thei r savings into the f inancial system. It gives them the option to remi t money to the i r fami l ies in v i l lages. I t is essent ia l to extend banking serv ices to

Financial Inclusion-Banking for All By R itesh Gupta( The author is a Student of I IFT )

the rura l h in ter land at the ear l ies t , so as to i n teg ra te those reg ions w i th the g row ing Ind ia.

I m p o r t a n c e o f F i n a n c i a l Inc lus ion

In a country where the per capi ta income is only Rs. 1 .75 lacs and 70% of people l ive in rura l areas, there is a need for people to save money espec ia l l y under the cu r ren t economic scenar io when the pr ices are very s teep. Prov id ing f inanc ia l serv ices to every c i t i z en becomes mo re impo r t an t . I t w i l l prov ide the c i t izens wi th var ious fac i l i t ies inc lud ing:

1 . M ic ro c red i t du r ing emergency : A t the t ime of emergency, bank can prov ide micro cred i t which can on ly be poss ib le i f bank uses f inanc ia l inc lus ion pract ica l ly .

2. Core banking so lut ions at Vi l lage Level : Now, mobi le revolut ion has reached up to t h e v i l l a g e s . W i t h f i n a n c i a l i n c l u s i o n movement, banks can provide ATM services and e-banking serv ices at the v i l lage level .

P r o b l e m s w i t h F i n a n c i a l Inc lus ion

The RBI and the government are t ry ing to prov ide f inanc ia l serv ices to every c i t izen for a long t ime but there has been issues

wh ich keeps pu l l ing i t back . Some o f the problems which are hamper ing the progress are:

F inancia l exc lus ion: F inancia l serv ices are used on ly by a sect ion o f the popu la t ion. There is demand for these serv ices but i t has not been prov ided as much as i t should have been. People l iv ing in the rura l areas or those who l ive in the p laces wi th harsh c l imat ic condi t ions are those who genera l ly face the issues with banking services. These lead them to rely on informal sector for their f i nanc i ng wh i ch i s usua l l y a t exo rb i t an t ra tes. These lead to a v ic ious cyc le. F i rs t , h i gh cos t o f f i nance imp l i es tha t a poo r person has to earn much more than someone who has access t o l owe r cos t f i nance . Second, the major por t ion of the earnings is paid to the moneylender and the person can never come out of the pover ty .

High cost : I t has been seen that the poor

l i v i ng i n r u r a l a r eas do no t u t i l i z e t he f inancial services as they f ind these services cost ly. Hence, even i f f inancia l serv ices are ava i lab le , the h igh costs deter them f rom access.

Non-price barriers: Access to formal f inancial s e r v i c e s r e q u i r e s d o c umen t s o f p r o o f rega rd ing pe rsons ’ i den t i t y , i ncome e t c . General ly the poor people do not have these documents and thus are excluded from these serv ices. High d is tance between the bank and res idence, poor in f rast ructure etc a lso prove to be a h indrance.

B e h a v i o u r a l a s p e c t s : D i f f i c u l t y i n understanding language, var ious documents and cond i t i ons t ha t come w i t h f i nanc i a l se r v i ces e t c . a l so p rove t o be a ma jo r deter rent for the people.

Steps taken by RBI

No f r i l l accounts: RBI has asked banks to of fer sav ings account which a l lows people to open an account without any or negl ig ible balance. The account is wi thout any other fac i l i t ies leading to lower costs for the bank and the ind iv idual . The number of no-f r i l ls account has increased in publ ic sector banks f rom about 0.4 mi l l ion to 6 mi l l ion between March 2006 and March 2007.

Use of Regional language: The Banks are requi red to prov ide a l l the mater ia l re la ted to opening accounts, d isc losures etc in the reg ional languages.

Simple KYC Norms: To ensure that persons belonging to low income groups do not face

BANKING

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

14 15BANKING

di f f icu l ty in opening the bank accounts, the KYC procedure fo r open ing accoun ts has been s impl i f ied.

O the r r u r a l i n t e rmed i a r i e s : Banks we re permi t ted in January 2006, to use o ther ru ra l o rgan isa t ions l i ke Nongovernmenta l o r gan i za t i ons , se l f - he l p g r oups , m i c r o -f i nance ins t i t u t i ons e tc fo r fu r the r ing the cause of f inanc ia l inc lus ion.

How to Improve the Inc lus ion Process

Simpl i fy procedures: Peop le are re luc tant to go to banks as they are not c lear of the d i rect ions, processes etc. Also poor people avoid banks because of compl icated forms, procedures etc. Simpler s t ructures wi l l lead to h igher foot fa l ls to the banks. Instead of cal l ing i t a saving account, separate account could be opened cal led educat ion account , vehic le account etc to enable a person to know the purpose of the sav ing.

Broader approach is requi red: The focus of pol ic ies has been so far on two things- one, to he lp peop le open more bank accoun ts and two, prov id ing credi t . The f i rs t makes peop le have a sense o f be long ing to the formal f inancia l system and also gives them an identi ty. The second helps them get some f inancia l capi ta l and enables them to carry on some business act iv i t ies to manage their l ivel ihoods. However, poor people also need to invest their savings into f inancial products that get them higher returns than returns on sav ings account and f ixed depos i ts . They a l so need o t he r f i nanc i a l f a c i l i t i e s l i k e insu rance , pens ion p lans e tc . to manage

r isks and o ld-age.

Financia l inc lus ion should be in sync wi th other sectors: Financia l inc lusion alone wi l l no t be enough . The re fo rms in f i nanc ia l sec to r have taken cent re s tage in Ind ian pol icy wi th substant ia l media coverage of the same. I t is t rue that access to f inance is important but there is also a need to help peop le t o ea rn money so t ha t t hey can ut i l ize the serv ices. Hence i t is impor tant that the f inanc ia l re forms be in sync wi th wha teve r r e f o rm i s be i ng made f o r t he growth of the indust ry .

Conclus ion

Providing f inancial services to al l wi l l foster the culture of savings providing them benefi t in the fu ture. I t wi l l a lso be a great boost for the economy as the banks wi l l be able to l end ou t more money to the i ndus t r y resul t ing in growth of the indust ry resul t ing in more emp loyment oppor tun i t i es to the people. which wi l l s t rengthen their f inancial pos i t ion.

BANKING MARKE T WATCH

Global Indices- 2011 By Piyush Mar waha( The Author is a Student of I IFT )

I t has been one of the most uncertain years for the global stock markets. The uncertainty

in f inanc ia l marke ts and g loba l s lowdown has added on to the pressure faced by the world indices. The Indian markets have been

one of the most impacted markets. The BSE SENSEX cur ren t l y a t 16213.46 and NSE n i f t y i ndex cu r r en t l y a t 4866.70(as on 9/12/11) dec l i ned by 15 .7% and 15 .6% respect ive ly over the past year wi th a 52 wee k h i g h o f o v e r 20000 a n d 6 18 1 respect ive ly . These numbers seem a l i t t le more d isappoin t ing when compared to the global indices l ike S&P 500 and nasdaqthat i nc reased marg ina l l y by 1 .8% and 1 . 15% over the year. The Asian markets have been among the weakest with Shanghai composite index and NIKKEI each losing around 17%the past year. The European markets have taken a hit as well with the UK based FTSE showing some res is tance by los ing only 4.80%with CAC and DAX shedding 16.62% and 13.41% respect ive ly .

The major concerns in the wor ld markets is the EU zone uncerta inty.To add to these the re have been se tbacks l i ke US deb t cei l ing concerns. In case of Indian markets, the uncertainty in growth rate, f luct uat ions

in the rupee and pol i t i ca l concerns have f u r t he r added t o t he p r e s su r e on t he marke ts and have p reven ted them f rom recove r i ng . The nea r f u t u re t oo seems bear ish for the wor ld markets as none of these concerns seem to fade of f soon. I t is a watch out and evaluate phase for the en t i r e f i nanc i a l ma rke t s . I n t he I nd i an pe r spec t i ve , t he ma rke t s , t hough have shown i s o l a t ed ses s i ons o f r a l l y , a r e bear ish in genera l wi th Sensex res is tance leve l appear ing at around 14500-15000 levels and 4700 seeming to be a s t rong res is tance level for n i f ty fo l lowed by one at around 4550 levels .g in growth of the i ndus t r y r esu l t i ng i n mo re emp loymen t oppo r t un i t i e s t o t he peop le . wh i ch w i l l s t rengthen the i r f inanc ia l pos i t ion.

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

16 17

di f f icu l ty in opening the bank accounts, the KYC procedure fo r open ing accoun ts has been s impl i f ied.

O the r r u r a l i n t e rmed i a r i e s : Banks we re permi t ted in January 2006, to use o ther ru ra l o rgan isa t ions l i ke Nongovernmenta l o r gan i za t i ons , se l f - he l p g r oups , m i c r o -f i nance ins t i t u t i ons e tc fo r fu r the r ing the cause of f inanc ia l inc lus ion.

How to Improve the Inc lus ion Process

Simpl i fy procedures: Peop le are re luc tant to go to banks as they are not c lear of the d i rect ions, processes etc. Also poor people avoid banks because of compl icated forms, procedures etc. Simpler s t ructures wi l l lead to h igher foot fa l ls to the banks. Instead of cal l ing i t a saving account, separate account could be opened cal led educat ion account , vehic le account etc to enable a person to know the purpose of the sav ing.

Broader approach is requi red: The focus of pol ic ies has been so far on two things- one, to he lp peop le open more bank accoun ts and two, prov id ing credi t . The f i rs t makes peop le have a sense o f be long ing to the formal f inancia l system and also gives them an identi ty. The second helps them get some f inancia l capi ta l and enables them to carry on some business act iv i t ies to manage their l ivel ihoods. However, poor people also need to invest their savings into f inancial products that get them higher returns than returns on sav ings account and f ixed depos i ts . They a l so need o t he r f i nanc i a l f a c i l i t i e s l i k e insu rance , pens ion p lans e tc . to manage

r isks and o ld-age.

Financia l inc lus ion should be in sync wi th other sectors: Financia l inc lusion alone wi l l no t be enough . The re fo rms in f i nanc ia l sec to r have taken cent re s tage in Ind ian pol icy wi th substant ia l media coverage of the same. I t is t rue that access to f inance is important but there is also a need to help peop le t o ea rn money so t ha t t hey can ut i l ize the serv ices. Hence i t is impor tant that the f inanc ia l re forms be in sync wi th wha teve r r e f o rm i s be i ng made f o r t he growth of the indust ry .

Conclus ion

Providing f inancial services to al l wi l l foster the culture of savings providing them benefi t in the fu ture. I t wi l l a lso be a great boost for the economy as the banks wi l l be able to l end ou t more money to the i ndus t r y resul t ing in growth of the indust ry resul t ing in more emp loyment oppor tun i t i es to the people. which wi l l s t rengthen their f inancial pos i t ion.

BANKING MARKE T WATCH

Global Indices- 2011 By Piyush M ar waha( The Author is a Student of I IFT )

I t has been one of the most uncertain years for the global stock markets. The uncertainty

in f inanc ia l marke ts and g loba l s lowdown has added on to the pressure faced by the world indices. The Indian markets have been

one of the most impacted markets. The BSE SENSEX cur ren t l y a t 16213.46 and NSE n i f t y i ndex cu r r en t l y a t 4866.70(as on 9/12/11) dec l i ned by 15 .7% and 15 .6% respect ive ly over the past year wi th a 52 wee k h i g h o f o v e r 20000 a n d 6 18 1 respect ive ly . These numbers seem a l i t t le more d isappoin t ing when compared to the global indices l ike S&P 500 and nasdaqthat i nc reased marg ina l l y by 1 .8% and 1 . 15% over the year. The Asian markets have been among the weakest with Shanghai composite index and NIKKEI each losing around 17%the past year. The European markets have taken a hit as well with the UK based FTSE showing some res is tance by los ing only 4.80%with CAC and DAX shedding 16.62% and 13.41% respect ive ly .

The major concerns in the wor ld markets is the EU zone uncerta inty.To add to these the re have been se tbacks l i ke US deb t cei l ing concerns. In case of Indian markets, the uncertainty in growth rate, f luct uat ions

in the rupee and pol i t i ca l concerns have f u r t he r added t o t he p r e s su r e on t he marke ts and have p reven ted them f rom recove r i ng . The nea r f u t u re t oo seems bear ish for the wor ld markets as none of these concerns seem to fade of f soon. I t is a watch out and evaluate phase for the en t i r e f i nanc i a l ma rke t s . I n t he I nd i an pe r spec t i ve , t he ma rke t s , t hough have shown i s o l a t ed ses s i ons o f r a l l y , a r e bear ish in genera l wi th Sensex res is tance leve l appear ing at around 14500-15000 levels and 4700 seeming to be a s t rong res is tance level for n i f ty fo l lowed by one at around 4550 levels .g in growth of the i ndus t r y r esu l t i ng i n mo re emp loymen t oppo r t un i t i e s t o t he peop le . wh i ch w i l l s t rengthen the i r f inanc ia l pos i t ion.

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

16 17

Monthly ChronicleBy Rohit K hattar (Author is a student of I IFT )

doubled to two per cent .

Coca-Cola to invest $2 bil l ion in India

Coca-Cola Co.’s subs id iary in Ind ia says i t p lans to invest $2 b i l l ion in the count ry over the next f ive years as the beverage maker t r ies to make a b igger push in the key emerging market .

Coca-Cola India said that i t p lans to use the money to bui ld up i ts in f rast ructure, develop i ts manufactur ing abi l i t ies, invest in consumer market ing and expand d is t r ibut ion.

Finance ministry st i l l in talks with RBI on raising FII debt cap

India’s f inance ministr y is st i l l in talks with the central bank about raising foreign insti-tut ional investment ( F I I ) l imit in govern-ment debt .

T h e g o v e r n m e n t h a s n o t f i n a l i s e d t h e t i m e f r a m e f o r r a i s i n g t h e l i m i t n o r h a s the amount of increase in the l imit been f inal ised. Currently, the l imit stands at $10 b i l l i o n . I n d i a’s m o s t t r a d e d n e w 1 0 - ye a r bond rose 1 basis point to 8.94 percent after the f inance ministr y sources comments.

T h e R e s e r v e B a n k o f I n d i a G o v e r n o r S u b b a r a o h a d s a i d i n l a t e O c t o b e r a n y d e c i s i o n o n t h e m a t t e r n e e d e d t o t a k e i n t o a c c o u n t e x t e r n a l s e c t o r v i a b i l i t y i ssues, bes ides the government ’s borrow-ing needs.

Rupee in free fal l

The rupee suf fered the worst f a l l i n 1 6 ye a r s i n N ove m b e r, plunging near ly 7 percent and h i t t i n g a re co rd l ow, a s p e r s i s te nt d o l l a r demand from impor ters and por tfol io out-f lows due to global r isk avers ion pounded the local unit .

The rupee continues to face fur ther depre -c i a t i o n t h r e a t s o n t h e b a c k o f a g a p i n g current account deficit and slowing growth.The par t ia l ly conver t ib le rupee c losed at 5 2 . 2 0 / 2 1 p e r d o l l a r o n 3 0 t h N o v e m b e r.The rupee is a l ready the worst-per forming

As i a n c u r re n c y, we a k e n i n g by m o re t h a n 13 percent f rom i ts st rongest point in late July. I t i s down near ly 14.37 percent so far in the calendar year.

Cabinet approves FDI in Mult i -Brand retai l

T h e c a b i n e t h a s f a c e d d o w n o p p o s i t i o n f ro m w i t h i n a n d o u t s i d e to a l l ow fo re i gn reta i lers to own a 51% stake in the mult i -b r a n d r e t a i l s e c t o r, p a v i n g t h e w a y f o r g lobal groups such as Walmar t , Carrefour and Tesco to open supermarkets in I ndia . I t a l s o a l l owe d 1 0 0 % F D I i n s i n g l e - b ra n d reta i l , a decis ion that wi l l encourage com-p a n i e s s u c h a s S w e d e n’s h o m e w a r e f i r m I k e a a n d c l o t h i n g re t a i l e r s G a p a n d H & M to set up shop.

Unt i l now, foreign f i rms were a l lowed 51% in s ingle -brand retai l , whi le being a l lowed to ow n 1 0 0 % o f b a c k- e n d c a s h - a n d - c a r r y o p e r a t i o n s t h a t s e r v e w h o l e s a l e r s . T h e decis ion to a l low foreign major i t y invest-m e n t i n m u l t i b r a n d re t a i l , b e s i d e s b e i n g t h e p a n a c e a t o t h e g o v e r n m e n t ’s i m a g e p ro b l e m , w i l l a l l o w c a s h s t r a p p e d I n d i a n reta i lers to tap sources of capita l and over the medium to long term give author i t ies a weapon against inf lat ion.

R a j J a i n , h e a d o f B h a r t i - Wa l m a r t I n d i a s a i d : “ We a r e w i l l i n g a n d a b l e t o i n v e s t i n b a c k e n d i n f r a s t r u c t u r e t h a t w i l l h e l p reduce wastage of farm produce, improve the l ive l ihood of far mers , lower pr ices of produc ts and ease supply-s ide inf lat ion.”

Small-savings to yield more

The governmen t has inc reased in te r -est ra tes on deposi t schemes of fered

by pos t o f f i ces , l i ke s a v i n g s a c c o u n t , M o n t h l y I n c o m e Scheme and Pub l i c Provident Fund. Whi le p o s t o f f i c e s a v i n g s accounts ( POSA) wi l l fetch 4 per cent inter-

es t , up f rom 3 .5 pe r cen t , t he Mon th l y I n come Scheme (M IS) and t he Pub l i c Prov ident Fund (PPF) wi l l earn an in ter-es t o f 8 .2 pe r cen t and 8 .6 pe r cen t respect ive ly .

The annua l i n ves tmen t ce i l i n g i n PPF savings has been increased to Rs one lakh f rom the present l imi t o f Rs 70,000, but i t wou ld be cost l ie r to obta in loans f rom the savings under as lending rate has been

Mahindra Satyam Q2 net up 10-fold

Mahindra Satyam posted a 10-fold growth i n p r o f i t - a f t e r - t a x t o R s 2 3 8 c r o r e t h e s e c o n d q u a r t e r o f t h e 2 0 1 1 - 1 2 f i n a n c i a l year. The company's prof i t-af ter-tax stood a t R s 2 3 . 3 1 c ro re i n t h e J u l y - S e p t e m b e r q u a r te r o f t h e 2 0 1 0 - 1 1 f i s c a l . O n a q u a r -te r - o n - q u a r te r b a s i s , M a h i n d ra S a t y a m' s prof i t -af ter-tax was up 5 .77 per cent f rom Rs 225 crore in Q1, FY '12.

T h e c o m p a n y ' s c o n s o l i d a t e d r e v e n u e s s u r g e d b y 2 7 . 0 1 p e r c e n t d u r i n g t h e q u a r t e r u n d e r r e v i e w t o R s 1 , 5 7 8 c r o r e f rom Rs 1 ,242.4 crore in the cor respond-ing per iod a year ago. On a Q - o - Q bas is , Q2 revenues were up 10.04 per cent f rom Rs 1,433.93 crore in the f i rst quar ter of the 2011-12 f inancia l year.

REGULARS

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

18 19REGULARS

Monthly ChronicleBy Rohit K hattar (Author is a student of I IFT )

doubled to two per cent .

Coca-Cola to invest $2 bil l ion in India

Coca-Cola Co.’s subs id iary in Ind ia says i t p lans to invest $2 b i l l ion in the count ry over the next f ive years as the beverage maker t r ies to make a b igger push in the key emerging market .

Coca-Cola India said that i t p lans to use the money to bui ld up i ts in f rast ructure, develop i ts manufactur ing abi l i t ies, invest in consumer market ing and expand d is t r ibut ion.

Finance ministry st i l l in talks with RBI on raising FII debt cap

India’s f inance ministr y is st i l l in talks with the central bank about raising foreign insti-tut ional investment ( F I I ) l imit in govern-ment debt .

T h e g o v e r n m e n t h a s n o t f i n a l i s e d t h e t i m e f r a m e f o r r a i s i n g t h e l i m i t n o r h a s the amount of increase in the l imit been f inal ised. Currently, the l imit stands at $10 b i l l i o n . I n d i a’s m o s t t r a d e d n e w 1 0 - ye a r bond rose 1 basis point to 8.94 percent after the f inance ministr y sources comments.

T h e R e s e r v e B a n k o f I n d i a G o v e r n o r S u b b a r a o h a d s a i d i n l a t e O c t o b e r a n y d e c i s i o n o n t h e m a t t e r n e e d e d t o t a k e i n t o a c c o u n t e x t e r n a l s e c t o r v i a b i l i t y i ssues, bes ides the government ’s borrow-ing needs.

Rupee in free fal l

The rupee suf fered the worst f a l l i n 1 6 ye a r s i n N ove m b e r, plunging near ly 7 percent and h i t t i n g a re co rd l ow, a s p e r s i s te nt d o l l a r demand from impor ters and por tfol io out-f lows due to global r isk avers ion pounded the local unit .

The rupee continues to face fur ther depre -c i a t i o n t h r e a t s o n t h e b a c k o f a g a p i n g current account deficit and slowing growth.The par t ia l ly conver t ib le rupee c losed at 5 2 . 2 0 / 2 1 p e r d o l l a r o n 3 0 t h N o v e m b e r.The rupee is a l ready the worst-per forming

As i a n c u r re n c y, we a k e n i n g by m o re t h a n 13 percent f rom i ts st rongest point in late July. I t i s down near ly 14.37 percent so far in the calendar year.

Cabinet approves FDI in Mult i -Brand retai l

T h e c a b i n e t h a s f a c e d d o w n o p p o s i t i o n f ro m w i t h i n a n d o u t s i d e to a l l ow fo re i gn reta i lers to own a 51% stake in the mult i -b r a n d r e t a i l s e c t o r, p a v i n g t h e w a y f o r g lobal groups such as Walmar t , Carrefour and Tesco to open supermarkets in I ndia . I t a l s o a l l owe d 1 0 0 % F D I i n s i n g l e - b ra n d reta i l , a decis ion that wi l l encourage com-p a n i e s s u c h a s S w e d e n’s h o m e w a r e f i r m I k e a a n d c l o t h i n g re t a i l e r s G a p a n d H & M to set up shop.

Unt i l now, foreign f i rms were a l lowed 51% in s ingle -brand retai l , whi le being a l lowed to ow n 1 0 0 % o f b a c k- e n d c a s h - a n d - c a r r y o p e r a t i o n s t h a t s e r v e w h o l e s a l e r s . T h e decis ion to a l low foreign major i t y invest-m e n t i n m u l t i b r a n d re t a i l , b e s i d e s b e i n g t h e p a n a c e a t o t h e g o v e r n m e n t ’s i m a g e p ro b l e m , w i l l a l l o w c a s h s t r a p p e d I n d i a n reta i lers to tap sources of capita l and over the medium to long term give author i t ies a weapon against inf lat ion.

R a j J a i n , h e a d o f B h a r t i - Wa l m a r t I n d i a s a i d : “ We a r e w i l l i n g a n d a b l e t o i n v e s t i n b a c k e n d i n f r a s t r u c t u r e t h a t w i l l h e l p reduce wastage of farm produce, improve the l ive l ihood of far mers , lower pr ices of produc ts and ease supply-s ide inf lat ion.”

Small-savings to yield more

The governmen t has inc reased in te r -est ra tes on deposi t schemes of fered

by pos t o f f i ces , l i ke s a v i n g s a c c o u n t , M o n t h l y I n c o m e Scheme and Pub l i c Provident Fund. Whi le p o s t o f f i c e s a v i n g s accounts ( POSA) wi l l fetch 4 per cent inter-

es t , up f rom 3 .5 pe r cen t , t he Mon th l y I n come Scheme (M IS) and t he Pub l i c Prov ident Fund (PPF) wi l l earn an in ter-es t o f 8 .2 pe r cen t and 8 .6 pe r cen t respect ive ly .

The annua l i n ves tmen t ce i l i n g i n PPF savings has been increased to Rs one lakh f rom the present l imi t o f Rs 70,000, but i t wou ld be cost l ie r to obta in loans f rom the savings under as lending rate has been

Mahindra Satyam Q2 net up 10-fold

Mahindra Satyam posted a 10-fold growth i n p r o f i t - a f t e r - t a x t o R s 2 3 8 c r o r e t h e s e c o n d q u a r t e r o f t h e 2 0 1 1 - 1 2 f i n a n c i a l year. The company's prof i t-af ter-tax stood a t R s 2 3 . 3 1 c ro re i n t h e J u l y - S e p t e m b e r q u a r te r o f t h e 2 0 1 0 - 1 1 f i s c a l . O n a q u a r -te r - o n - q u a r te r b a s i s , M a h i n d ra S a t y a m' s prof i t -af ter-tax was up 5 .77 per cent f rom Rs 225 crore in Q1, FY '12.

T h e c o m p a n y ' s c o n s o l i d a t e d r e v e n u e s s u r g e d b y 2 7 . 0 1 p e r c e n t d u r i n g t h e q u a r t e r u n d e r r e v i e w t o R s 1 , 5 7 8 c r o r e f rom Rs 1 ,242.4 crore in the cor respond-ing per iod a year ago. On a Q - o - Q bas is , Q2 revenues were up 10.04 per cent f rom Rs 1,433.93 crore in the f i rst quar ter of the 2011-12 f inancia l year.

REGULARS

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

18 19REGULARS

1) Ar i rang, Kimchi , Panda, Maple and Ur idashi are a l l types of what?

2) With which wel l known economist would one associate the fo l lowing l ine about a place where he worked: “You soon learn to mumble wi th great incoherence”?

3) Which type of money, a lso the name of a huge brand, l i tera l ly means, “ le t i t be done”, in Lat in?

4) What c la im to fame does Ala in Bi l l ie t have, as far as logos are concerned?

5) Which was the f i rs t Amer ican carmaker s ince Ford Motor Corp. to launch an IPO?

6) An easy one: which hedge fund, which spectacular ly fa i led wi th in a few years of i ts incept ion, had two Nobel Laureates on i ts board?

7) Which rogue t rader was d i rected to repay the ent i re sum of $6.7 b i l l ion, the amount which he had caused h is f i rm to lose?

8) Which Indian f i rm’s d iv is ions inc lude Nature l le, Jaqul ine and Weikf ie ld In ternat ional?

9) What c la im to fame does Monte dei Paschi d i S iena have in the wor ld of f inance?

10) Connec t the fol lowing pic tures with a wel l k nown phrase, re lated to a famous event in the wor ld of f inance and business, in which these people were involved.

Answers wi l l be avai lable with the nex t i ssue

Fun With FinBy J.RAHUL( The author is a student of I IFT )

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

20 21REGULARS

1) Ar i rang, Kimchi , Panda, Maple and Ur idashi are a l l types of what?

2) With which wel l known economist would one associate the fo l lowing l ine about a place where he worked: “You soon learn to mumble wi th great incoherence”?

3) Which type of money, a lso the name of a huge brand, l i tera l ly means, “ le t i t be done”, in Lat in?

4) What c la im to fame does Ala in Bi l l ie t have, as far as logos are concerned?

5) Which was the f i rs t Amer ican carmaker s ince Ford Motor Corp. to launch an IPO?

6) An easy one: which hedge fund, which spectacular ly fa i led wi th in a few years of i ts incept ion, had two Nobel Laureates on i ts board?

7) Which rogue t rader was d i rected to repay the ent i re sum of $6.7 b i l l ion, the amount which he had caused h is f i rm to lose?

8) Which Indian f i rm’s d iv is ions inc lude Nature l le, Jaqul ine and Weikf ie ld In ternat ional?

9) What c la im to fame does Monte dei Paschi d i S iena have in the wor ld of f inance?

10) Connec t the fol lowing pic tures with a wel l k nown phrase, re lated to a famous event in the wor ld of f inance and business, in which these people were involved.

Answers wi l l be avai lable with the nex t i ssue

Fun With FinBy J.RAHUL( The author is a student of I IFT )

I N F I N E E T I | D E C E M B E R 2 0 1 1 I N F I N E E T I | D E C E M B E R 2 0 1 1

20 21REGULARS