Exchange-traded derivatives originally only did commodity underlyings. The world's first financial underlying was : currencies. On 16 May 1972, the Chicago Mercantile Exchange started trading in currency futures. To any finance person, nothing is simpler than a currency futures, but unfortunately in India a mixture of ignorance, ideology and turf considerations has hindered progress.In 1996, when NSE had just got started talking about equity derivatives, I happened to be session chairman in a conference organised by Invest India...
Thursday, 22 April 2010
Wednesday, 21 April 2010
In continuation of yesterday's blog post on the big quantities visible on the order book of the NSE currency futures market, I got hold of order book information for one recent timepoint (10:32 AM on 9 April) for three April expiry futures: Nifty, INR/USD and Reliance. This is not as good as looking at information for today or yesterday, but it's quite instructive.Theory teaches us that liquidity varies with volatility and asymmetric information....
India is the second country of the world, after Brazil, where the currency futures are more liquid than the currency forwards. Today when I glanced at the order book of the near month rupee-dollar futures, I was struck by the big numbers that are visible:The tick size of this market is 0.25 paisa, so the top five prices cover 1.25 paisa on each side. So there's nothing interesting about the prices: I focus on the quantities. I'm used to generally...
Monday, 19 April 2010
In India, inflation measurement is commonly done using year-on-year growth rates. The change in a price index from March 2009 to March 2010 shows the average rate of change over the 12 intervening months. But the most important thing to focus on is the point-on-point change seen in January, February and March. Computing this requires first seasonally adjusting the price index, so as to avoid being confounded by seasonal fluctuations. We do this at http://www.mayin.org/cycle.in with updation every Monday.Another big issue in inflation measurement...
Tuesday, 13 April 2010
The recent rupee appreciation, followed by rumours of RBI intervention, has set off fears that we're in for a repeat of the sad episode of monetary policy 2006/2007 all over again.Writing in the Business Standard, Shankar Acharya repeats the advice that he gave RBI in 2006 and 2007. But new perspectives are now visible: see a striking piece by Ravi Jagannathan in DNA, and Pratap Bhanu Mehta in the Indian Express.Ila Patnaik, in the Indian Express, emphasises that monetary tightening and exchange rate appreciation...
Monday, 12 April 2010
T. N. Ninan on the four groups at work on the creeping expansion of welfare programs in India.In addition to Parth Shah's blog post The Right to Education Act: A critique, also see Opening school doors to India's poor in the Wall Street Journal and The wrong way to school in the Mint. Also see Gurcharan Das in the Business Standard and Ashok Desai in Business World.An editorial in the Financial Express on one step towards India as a unified country. And, see M. Govinda Rao on the issues surrounding the `fiscal...
Sunday, 11 April 2010
On 9 April (Friday), SEBI came out with an order against insurance companies selling mutual-fund-like products without being regulated as mutual funds are [pdf]. IRDA has come out with a press release and an order. My immediate response in a blog post was that this underlines the problems of a silo system. In Financial Express today, I have a column on the subject: SEBI rules and insurance companies. See Jayant Thakur on the Indian Corporate Law blog. Reportage in the Mint by Kayezad E. Adajania, N. Sundaresha Subramanian...
Saturday, 10 April 2010
One sees a lot of crude real vs. financial reforms arguments in India these days. Many people are convinced that a sophisticated financial system is not important for India's growth. Two papers which came out in the last week help illuminate these questions.In a working paper Quantifying the Impact of Financial Development on Economic Development, Jeremy Greenwood, Juan M. Sanchez and Cheng Wang look at the size of the impact of financial modernisation in economic development. The headline summary: Roughly one-third of Uganda's...
Friday, 9 April 2010
India has long operated a `silo system' where the financial industry was sought to be broken up into vertical silos associated with regulatory agencies. The word `regulation' is relatively little understood in India. Instead, there has been a central planning notion of comprehensive `control' of a given financial firm vesting in a given regulator, so that a somewhat feudal arrangement prevails in each silo.This is not how an efficient financial system works. As Percy Mistry's report says, in the future, government needs to to reorganise...
Monday, 5 April 2010
Saturday, 3 April 2010
Shekhar Gupta's column in the Indian Express today is about the incipient threats faced by freedom of speech in India.In this ranking for 2009, by Reporters without Borders, India's freedom of press comes in at rank 106 out of 175 countries (top 60th percentile). We're in the company of Burundi, Côte d’Ivoire, Guatemala and Oman. Ouch! (In 2002, we were slightly worse: we were in the top 56th percentile). If you'd like to think about how this can be made better, an ideal starting point is their questionnaire.There is a great piece by Donald...
Thursday, 1 April 2010
by Parth Shah.The `Right of Children to Free and Compulsory Education Act 2009' (RTE Act) came into effect today, with much fanfare and an address by Prime Minister Manmohan Singh. In understanding the debates about this Act, a little background knowledge is required. Hence, in this self-contained 1500-word blog post, I start with a historical narrative, outline key features of the Act, describe its serious flaws, and suggest ways to address them.Historical narrativeAfter independence, Article 45 under the newly framed Constitution stated that...
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