We are all used to seeing the options chain for Nifty, but now you have one for INR/USD.Also read Mobis Philipose in Mint on the unfinished business of derivatives trading in Ind...
Thursday, 28 October 2010
In a few minutes, NSE and USE will start trading in currency options. This will be the first exchange-traded options in India on a non-equity underlying.Currency options are obviously useful as a risk-management tool. I feel that futures are nice simple linear contracts: they ask the person to make only one decision -- are you long or are you short. But once a futures position is entered into, the person needs the ability to manage the position since daily marking-to-market is done, and since there can be large losses for either the futures long...
Monday, 25 October 2010
The `lemons model' in milk procurementOne of the classic stories of India of old is that of Amul, which brought new technology into milk procurement. When the farmer brought his shipment of milk to the Amul front-end, a centrifuge was used to measure the characteristics of this shipment, and based on this payments were made. See this blog post by Alok Parekh, Naman Pugalia and Mihir Sheth. This eliminated the incentives for aduleration of milk by the farmer, which used to be done by adding in water or by skimming the cream.We can think...
In reading this article in the Wall Street Journal by By Rebecca Thurlow, Alison Tudor And P. R. Venkat about the potential merger of SGX with ASX, I saw this interesting cross-country comparison of exchange charges (in basis points):Country Trading and clearing TaxesSingapore4.750Hong Kong1.120Taiwan0.7530Korea0.5430Australia0.530India0.3527Japan0.240It is quite a striking set of facts.First, we see that in terms of the core trading and clearing -- the charges of the exchange -- India is the 2nd lowest in this pile, with a value of 0.35...
Wednesday, 13 October 2010
From the mid 1990s onwards, the US trade balance has steadily become bigger. This is a centrepiece of the problem of `global imbalances'. Starting from values of roughly zero, this got all the way to values like $70 billion a month, where the US was importing over $2 billion a day of capital to pay for the trade deficit. Here's the picture:The US trade balance (goods+services, per month, seasonally adjusted)This was termed as the `Bretton Woods II'...
Tuesday, 12 October 2010
MoF press release on FSDC.For the background on FSDC, see: the budget announcement of Feb 2010, a newspaper column of mine on 16 March, and a collection of responses in the media on 20 March.Does the FSDC amount to clipping RBI's wings?The FSDC is only a committee. It is not backed by law. So nothing changes about RBI's role and function.RBI staff have done speeches saying that financial stability is their job.The RBI Act does not contain the word `financial stability'. So while some in RBI might aspire to such a function,...
Sunday, 10 October 2010
C. J. Chivers has a story in the New York Times from Uzbekistan which links up to an idea that I have often thought would be a great step forward for India: the interior of every police station in the country should be blanketed with video cameras giving feeds out to the Net. As Robert Kaplan says, underdevelopment is where the police are more dangerous than the criminals. If we think surveillance cameras are important in public places, they are triply important to watch the interiors of police stations. On a related note, see...
Akbar's transport of ice In the ferocious height of the Delhi summer, Akbar setup a mechanism whereby horses started out with ice in Kashmir and rode south. The ice was handed from one horse to another, keeping it constantly on the move. In the end, what reached him was a few kilos of ice. (I'm unable to recollect where I read this, and google doesn't seem to have heard about it. Please do tell me if you know something about this.) The Indian ice trade In 1833, merchants figured out that it was profitable to transport ice from...
Thursday, 7 October 2010
by Pratik Datta and Shubho Roy.The much awaited decision of the Supreme Court in the matter of ICICI v. Official Liquidator of A.P.S. Star Industries is now available. The case had come as an appeal against a decision of the Gujarat High Court which invalidated transfer of Non-Performing Assets between banks. The decisions of the High Court and the Supreme Court are important in illuminating the legal foundations of Indian finance.BackgroundVarious borrowers owed a total of Rs. 52.45 crores to ICICI (Amongst which one of the borrowers was M/s A.P.S....
Tuesday, 5 October 2010
There is a lot of talk about capital inflows, rupee appreciation, concerns about export competitiveness, etc. It made me pull up the data to look at what is going on. The graph shows the nominal and real effective exchange rate of the rupee. The source is the BIS: the best computation of these indexes presently available.Real and Nominal effective exchange rate of the Indian RupeeThere is one constraint of this data: it ends in August. The picture...
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