06.05.2009

Politics & the Nation

• What is the US attempt at bringing about a comprehensive revision in the international patent system?
  
• Championed by the US Patent and Trademark Office, the revision seeks to put in place a system whereby a patent granted in any two of the 11 countries, will force other countries to grant patent.  
  
• Understanding the import of this attempt on all other sectors may take time, but the Indian drug industry is quick to cry foul. 
  
• The US is seeking to put in place this system through WIPO - World Intellectual Property Organization.  It has recognized patent offices of 11 countries including the US, UK, Germany and Japan.  Indian patent office is not among these 11 recognized by WIPO.  If the proposal is implemented it will be easier for the global drug companies, which have seen their patent applications being rejected in India on one pretext or the other, to obtain patents locally.  Obtaining patents locally means gaining access to price their products as they choose for 20 years.
  

 Finance & Economy

• India's black money
  
• Anywhere between $22-27 billion left the country every year illegally during the period 2002-06, giving us the dubious distinction of being the fifth largest source for illegal flows in the developing world. 
  
• In a country where close to a quarter of the population live below the poverty line this is simply unacceptable.
  
• Is the IMF's SDR an international reserve currency?
  
• The SDR is not a currency. It is a composite accounting unit in which the IMF issues credits to its members.  Those credits can be converted into dollars and other currencies at the Fund, and can be used in official transactions among IMF member countries. But they cannot be used in the other transactions in which central banks and governments engage. They cannot be used to intervene in foreign exchange markets, or in other transactions with market participants. 
  

International

• The America first policy of the Obama administration
  
• The Obama administration said it would end tax breaks for American companies expanding their overseas operations
  
• US companies have to pay almost 35% corporate tax on income generated in the country. Under the current law, firms don’t pay taxes to the US government on income earned abroad until they bring the money back to the United States. Obama wants to reform this part of the law which is called ‘deferral.’
  
• Top US firms, including Citigroup, derive over half their revenues from overseas markets 
  
• By taxing foreign earnings of US firms, Obama wants to discourage offshoring of jobs 
  
• New tax will help US raise $210 bn in tax revenues over next few years 
  
• Companies such as Citi, JPMorgan & GE outsource work to India not to evade taxes but to leverage cost advantages 
  
• Back-office IT projects can be done at half of US costs in India 
  
• Captives in India export back-office projects worth $4.8 bn annually US accounts for over 50% of Indian IT exports
  
• The import of a softening of Libor
  
• For the first time, the three-month Libor (the London Inter-Bank Offered Rate), an international benchmark interest rate used to price corporates loans, has slipped below 1%.  This is an indication that banks are more willing to lend. Libor had surged to 4.82% after the Lehman collapse in September last year. 
  
• The global money market, which almost froze after the Lehman collapse, had turned risk averse, with bankers charging hefty premium over Libor. This premium, better known as a spread over Libor, is now expected to narrow. 
  
• Indian companies have borrowed more than $70 billion from overseas markets in the past three years. 
  
• Banks' reluctance to lend is measured by the Libor-OIS spread.  This number captures to what extent banks are comfortable with carrying risks of volatility in overnight rates.  This has also narrowed on Tuesday to its lowest level since September 1.  
  
• International banks and stress tests
• We have been hearing/reading about 'stress tests' being conducted on banks by the US government.  'Stress test' is one phrase that has found its way into our vocabulary in the last couple of months.  
• Take a look at this graphic.  It gives some details of what is done through those tests.

Language lessons

• quaint: Adjective
• Strange in an interesting or pleasing way; Very strange or unusual; odd or even incongruous in character or appearance; Attractively old-fashioned (but not necessarily authentic)
  
• eg: The government’s reasons for exercising caution in further reducing the cash reserve ratio and the repo and reverse repo make quaint reading.
• backstop
• Noun: A precaution in case of an emergency
• Verb: Act as a backstop
• eg: The dollar originally acquired international currency status in the 1920s, when the newly established Federal Reserve started buying and selling dollar acceptances, backstopping the market and enhancing its liquidity.