17.11.2008

Finance and Economy

India, China take centre stage at G20

  • The final declaration of the summit

    • Expresses a clear resolve on the part of the global community to broad base the decision-making structures of international finance to include the major emerging markets like India and China

    • Calls for coordinated fiscal stimulation among the member countries that account for 80% of the world output and warned against protection

    • Underlines the need for common accounting and regulatory standards that would bring transparency and regulation to those segments of the derivatives market that are today outside the scope of any kind of prudential oversight

  • The summit identified immediate and medium-term action plans in strengthening transparency and accountability, enhancing sound regulation, prudential oversight, risk management, promoting integrity in financial markets, reinforcing international co-operation and reforming international financial institutions

  • This is the first global body to incorporate major developing countries is likely to be the Financial Stability Forum, a grouping of monetary and market regulators from 12 rich countries and a handful of international agencies dominated by the rich nations of the world

RBI in talks with banks to cut derivative risks

  • To lower credit and derivative risk, there are discussions between the Reserve Bank of India (RBI) and some large banks to introduce below mentioned system in the Indian derivative market

    • Derivative deals between two banks or a bank and a corporate have a long life — two years or even five years when the derivative contract finally expires. By then, the market may have undergone a sea change or one of the parties may have collapsed

    • So, instead of keeping alive such risks for years, it would make sense for the two parties in a derivatives contract to take a look at the deal every fortnight or month, and then pay or collect cash, depending on which way the market has moved

    • This can be done on the basis of a credit support annex (CSA) agreement between institutions entering into a derivative deal

  • It is possible to figure out at any stage what the derivative contract means for the two entities which have entered into it. This is captured by the markto-market position (MTM) at any point

  • The party with an MTM loss — the position that is described as ‘out of money’ in market parlance — pays the other party who is ‘in the money’

  • RBI is trying hard to ensure that the fallout of the global crisis is confined to stock markets only and does not boil over to real economy

What else can RBI do to help the credit markets

  • RBI can have a dollar swap line with Fed

  • Make more oil bonds ‘repoable’ i.e. greater trading flexibility to players in the local bond market

  • Cut repo rate

  • Free rates on NRI deposits

Events

18 Indians On Board Hijacked Ship Safe, $1.4mn ransom paid

  • After two months of being held captive in unhygienic conditions and with limited food, 22 sailors, including 18 Indians, were sailing to freedom and Mumbai on Sunday on board the Japanese merchant tanker MT Stolt Valor

  • The crew members, who were taken hostage on September 15 in the Gulf of Aden by Somali pirates, are safe and may reach Mumbai in four to five days

  • The sailors were released by their captors at around 7 am (IST) on Sunday after the Japanese owners, Central Marine, reportedly paid a hefty ransom to the pirates

  • The vessel, sailing from Egypt to Mumbai and carrying 23,818 tonnes of oil products, had been hijacked in the Gulf of Aden off Yemen’s coast on September 15. The pirates then took the ship to Eyl along the Somalian coast, where they dropped anchor

Competitive exams

CAT this year tougher

  • As you know, yesterday was CAT exam for MBA admission. For over 2.5 lakh candidates who took a crack at CAT—the common admission test to the coveted IIMs—in 23 cities across the country, belling the CAT was a trifle tougher this year than it was for the last two year

  • This year there was a sharp increase in the number of questions in the CAT exam, which is used by over 110 institutes besides the IIMs

  • While there were 75 questions worth a total of 200 marks for CAT 2006 and 2007, this year the number of questions increased to 90, worth a total of 360 marks. However, while the number of questions were more than the previous two years, the duration of the exam remained the same—150 minutes

  • Last year, there were 25 questions in each of the three sections—Quantitative Aptitude (QA), Data Interpretation (DA) and Verbal Ability/Reading Comprehension. This year, while the number of questions in the QA and the DA sections remained the same as last year, the 15 ‘extra’ questions were in the verbal ability section

  • Trends in CAT exam

  • Detailed analysis of CAT 2008

Sports

Singh Is King in Singapore

  • Jeev Milkha Singh upstaged golf stars like Padraig Harrington and Ernie Els to win the $5m Singapore Open on Sunday

  • The Indian ace, who bagged his third title of the year, scythed through a line-up that included most of the world's top golfers barring Tiger Woods

  • He has virtually sealed Asian Order of Merit title with 4 events still to be played (total earnings so far in 2008 —$1,405,606).He will be the first Indian to win the Asian Merit title twice

  • scythed means to mow or cut down

Anshu Jain picks 15% in Mukesh’s Mumbai Indians

  • Anshu Jain, head of global markets at Deutsche Bank, has bought a minority stake in Mumbai Indians, the Indian Premier League (IPL) cricket team owned by Reliance Industries chairman Mukesh Ambani

  • London-based Mr Jain, a keen cricket enthusiast who is often seen at the Lord’s cricket ground enjoying matches, is said to have picked up the stake in his personal capacity

  • Jaipur-born Mr Jain ranks among the most influential bankers in the world and is widely credited with helping transform Deutsche Bank into an international bond market powerhouse

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