You are on page 1of 12

1 6 T H M A R C H V O L U M E I S S U E 2 2 4

INSIDE THIS ISSUE: Scandal Interview Interview, Did You Know Investors Check Investors Check Continued Debate Quiz & Crosswords REER Commodities Market Quiz Crosswords, Alumni Speak Alumni Speak, Answers 2 3 4 5 6 7 8 9 10 11 12

International Headlines

U.S. President Barack Obama forecast a dismal first quarter for the economy as data showed U.S. auto sales fell 40 percent in February and sales of previously existing homes in January tumbled to a record low Premier Wen Jiabao assured on Thursday that China will achieve 8 percent growth this year despite a deepening financial crisis, setting out export support and spending programmes to shore up the economy. The Bank of England cut interest rates by another 50 basis points on Thursday to a record low of 0.5 percent, and said it would buy assets worth 75 billion sterling in a drive to help the British economy by expanding the money supply. The U.S. unemployment rate hit a 25-year high of 8.1 percent last month as employers buckling under the strain of a severe recession axed 651,000 jobs. Intel Corp could face a hefty fine from EU regulators over charges it fiddled with retail channels to suppress competitors, but of more concern could be any fresh rules imposed by the EU.

National Headlines

RBI verifying solvency of 10 realty firms-Large-scale borrowing has distorted the normal debt equity ratio for most of the companies and made them highly leveraged. Bond yields fall as RBI rejects bids-Government bonds jumped the most in two months after the central bank rejected all bids at a government debt auction. Bank credit flow goes up, courtesy year-end demand-With the financial year drawing to a close, bank credit flow has seen a revival of sorts with advances rising by Rs 21,307 crore. Centre, states want IPL dates revised further-IPL Been asked to further revise match schedules for the coming Twenty20 as they are overlapping with the general election dates. More fiscal stimulus needed, say economists-monetary policy alone cannot put the economy back on the high growth trajectory & that future measures should be sectorspecific.

Repo 5% PCR Nifty 0.96

Rev Repo 3.5% Forex Res$279.29 bill

CRR- 5.0% 91day T-Bill4.58%

Inflation 2.43% 10 year G-Sec Yield 7.02%

IIP- 3% AUM-INR5.01 Trillion

Scandal

PAGE

THE 1973 OIL CRISIS STARTED ON OCTOBER 15, 1973, WHEN THE MEMBERS OF ORGANIZATION OF ARAB PETROLEUM EXPORTING COUNTRIES (OAPEC) PROCLAIMED AN OIL EMBARGO IN RESPONSE TO THE U.S. DECISION TO RE-SUPPLY THE ISRAELI MILLITARY DURING THE YOM KIPPUR WAR (SYRIA AND EGYPT ATTACKING ISRAEL) OPEC DECLARED IT WOULD NO LONGER SHIP OIL TO THE UNITED STATES AND OTHER COUNTRIES IF THEY SUPPORTED ISRAEL IN THE CONFLICT. INDEPENDENTLY, THE OPEC MEMBERS AGREED TO USE THEIR LEVERAGE OVER THE WORLD PRICE-SETTING MECHANISM FOR OIL IN ORDER TO STABILIZE THEIR REAL INCOMES BY RAISING WORLD OIL PRICES. THIS ACTION FOLLOWED SEVERAL YEARS OF STEEP INCOME DECLINES AFTER THE END OF BRETTON WOODS (THUS TAKING U.S OUT OF THE GOLD EXCHANGE STANDARD AND ALLOWING THE DOLLAR TO FLOAT). FOR MOST OF THE TIME, THE INDUSTRIALIZED NATIONS WERE DEPENDENT ON THE OPEC FOR THEIR OIL SUPPLY AND SO THEY WERE BADLY AFFECTED BY THE CRISIS. THE EMBARGO WAS LIFTED IN MARCH 1974 AFTER NEGOTIATIONS AT THE WASHINGTON OIL SUMMIT CONSEQUENCES: OPEC FORCED THE OIL COMPANIES TO INCREASE THE OIL PRICE DRASTICALLY THE TRADITIONAL FLOW OF CAPITAL REVERSED AS THE OIL EXPORTING NATIONS ACCUMULATED VAST WEALTH USED IN ARMS PURCHASE, AID TO UNDERDEVELOPED NATIONS ETC OPEC-MEMBER STATES IN THE DEVELOPING WORLD WITHHELD THE PROSPECT OF NATIONALIZATION OF THE COMPANIES' HOLDINGS IN THEIR COUNTRIES THE 1973 RATIONING OF GASOLINE IN U.S OIL CRISIS NEW YORK STOCK EXCHANGE LOST $97Billion IN 6 WEEKS VARIOUS ENERGY SAVING SCHEMES LIKE DAYLIGHT SAVING SCHEME, A NATIONAL MAXIMUM SPEED LIMIT ETC WERE INTRODUCED IT SPURRED AN INTEREST IN RENEWABLE SOURCES OF ENERGY AND RELATED RESEARCH

MACROECONOMIC EFFECTS: JAPANS ECONOMY SHIFTED FROM AN OIL INTENSIVE INDUSTRY TO INVESTMENTS IN ELECTRONICS. THE WESTERN NATIONS' CENTRAL BANKS DECIDED TO SHARPLY CUT INTEREST RATES TO ENCOURAGE GROWTH, WHICH ACTUALLY RESULTED IN STAGFLATION. EFFECT ON INTERNATIONAL RELATIONS: THE UN PASSED A RESOLUTION TO CREATE A NEW INTERNATIONAL ECONOMIC ORDER IN WHICH RESOURCES,TRADE AND MARKETS WOULD BE MORE EQUITABLY DISTRIBUTED AMONG THE SOUHTERN HEMISPHERE COUNTRIES DEPENDING ON THE BENEFITS DERIVED FROM THEIR EXPLOITATION FALL OF OPEC DUE TO COUNTRIES MOVING TO ALTERNATE SOURCES OF ENERGY AND THEIR PRODUCTION BEING SURPASSED BY OTHER COUNTRIES GROWING FEARS ABOUT THE ENERGY INDEPENDENCE OF THE WEST AND THE ABSENCE OF WESTERN RIVAL IN THE MIDDLE EAST LED TO A DEPENDENT REATIONSHIP WITH THE WEST

IMPACT ON MOTOR INDUSTRY: AFTER THE CRISIS, GASOLINE COST MORE DUE TO HEAVY TAXES LEVIED ON THEIR IMPORTS AND THUS REDUCED THE DEMAND FOR LARGE CARS SMALL CARS ( 4 CYLINDER AND 6 CYLINDER ENGINES) HAD HUGE DEMANDS AS COMPARED TO THEIR SUPPLY EUROPEAN AND JAPANESE AUTOMAKERS EXPORTED THE BIG CARS TO U.S TO MEET THE DEMAND

Economies are supposed to serve human ends.. not the other way round. We forget at our peril that mar-

kets make a good servant, a bad master and a worse religion-Amory Lovins

Interview
Q1: Briefly describe your job profile?

PAGE

Ans: I am presently working as Assistant General Manager, presently in the Risk Management Department of a public sector bank in Bangalore. I have more than three decades of banking experience, covering various areas such as branch banking, Credit, Merchant Banking, Investment, Audit/Inspection, Risk Management and also overseas banking exposure recently for three years. My Educational qualification is MSC, MBA (Finance), LLB, CAIIB. Q2: How do you feel the economic downturn is affecting the banking sector in India? Ans: Indian banking system has demonstrated much resilience with the underpinnings of a strong regulatory framework and sound practices, when compared to banking sector at western developed countries who have witnessed a sharp setback as a result of global financial crisis. Again, Indian banking sector has not experienced any contagion similar to its peers in the emerging market economies. Whereas, we know that 25 banks have failed in USA in the year 2008 starting from Lehman Brother and 16 banks are already up on their belly in the first two months of this year 2009! Not even a single bank in India had any major impact of the financial crisis. Indian banks had no direct exposure to any global toxic assets and had so far handled the financial crisis relatively better, thanks to prudential measures taken by the RBI. RBI's cautious stance helped rein in the otherwise rapid-growth witnessed in some sectors, particularly, real estate, capital market which is termed as sensitive sector. Reckless lending to real estate sector and securitization of those loan products (Collateral Debt Obligations - CDOs) and lack of regulation was the root-cause for M.V.MALLAYA, the sub-prime crisis in USA which has spread over entire global financial system. Assistant The RBI used a variety of instruments such as incremental risk weights for sensitive general sector exposures, Market stabilization scheme (MSS) bonds, Liquidity Adjustment Facility (LAF), Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) levers to manager, Risk ensure banks functioned in a well-regulated environment. Q3: Do you feel in near future the situation is going to change for better or for worse specially in context of banking sector?

management, Canara bank

Ans: During the last five years India clocked an unprecedented nine per cent growth. At the heart of India's growth were a growing entrepreneurial spirit, rise in productivity and increased savings. These fundamental strengths and our domestic consumption rate continue to be in place. Nevertheless, the global crisis dent India's growth trajectory, as external demand, internal investments would slow down. This would impact Indian Banking sector as well. The credit growth rate of the banks may reduce as a manifestation of shrinking demand from manufacturing as well as service sector. Banks may try to de-risk their balance sheet and preserve capital in an environment that spells uncertainty about duration of the economic down turn. There are chances of deteriorating the quality of assets or credit portfolio of the banks and pressure may build up on capital holding of the banks due to higher provisions and reduced earnings. Only when the global economy begins to recover, the Indian economic conditions may turn around much sharper and swifter, backed by strong fundamentals and the untapped growth potential. Some experts say Indian economy may recover fast and may show signs of recovery by last quarter of this year. It is difficult to guess how long this down-turn may continue. But on a rough guess, according to me, our financial sector, particularly capital market, banking sector etc may come out of the impact after first or second quarter of next financial year i.e., June 2010/September 2010.Till then, as rightly said by the Governor of RBI There is a period of painful adjustment ahead of us" Q4: What do you find as the most challenging aspect of your job? Ans: Right now I am overseeing implementation of Basel II norms in our bank. Understanding intricacies of various parameters of the Basel norms and its analysis, identifying the required technological

If all economists were laid end to end, they would not reach a conclusion. George Bernard Shaw (1856 - 1950)

Interview Continued
infrastructure and its implementation, creating a data warehouse for a century old bank spread across the country which is the one of the important requirements for risk management on real-time basis, grooming and developing skill level of persons involved in the implementation of Basel norms and risk management initiatives are some of the major challenging aspects of my present placement in our bank. Q5: Do you want to convey any message to the budding managers?

PAGE

Ans: Nothing specific! Do not get disheartened or pessimistic due to the present economic crisis, which may directly or indirectly impact your present or near future. These crises are cyclical in nature. Situation will definitely improve. Think differently, Dream big and work towards realizing your dreams. Show eagerness to learn new things. Ultimately your winning attitude, your willingness, your perseverance and passion pays. Be disciplined and plan well in advance. Display grace under pressure. Be calm in stressful situation. Retain peace in times of grief.

Did You Know ?

International Foreign Exchange Master Agreement - IFEMA is an agreement set forth by the Foreign Exchange Committee that reflects the best practices for transactions in the foreign exchange market. IFEMA was published in 1997 and sponsored by the British Bankers Association, Canadian Foreign Exchange Committee and the Tokyo Foreign Exchange Market Practices Committee. Kiwi is a slang term for the New Zealand dollar (NZD). It derives its name from New Zealand's national icon - a flightless bird called a kiwi - which is pictured on one side of the country's $1 coin. the largest nuclear production industry in the world, Electricite de France, has accumulated a debt of over 30 billion US dollars, making it the most Indebted company in the world Panel bank is the name given to the group of banks contributing to the EURIBOR. This group is made up of the largest participants within the Euro money market. China Investment Corporation (CIC) is a government-sponsored entity of the People's Republic of China that seeks to invest in securities and commodities abroad. The CIC was initially funded with around $200 billion, which originated from the issuance of long-term treasury bonds by the People's Bank of China (PBOC). The bond proceeds were then converted into dollars through the foreign exchange market. Elephants is a slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants deal in, any investment decisions that they make will have a large influence on the price of the underlying financial asset. COMEX is the primary market for trading metals such as gold, silver, copper and aluminum. Formerly known as the Commodity Exchange Inc., The COMEX merged with the New York Mercantile exchange in 1994 and became the division responsible for metals trading and hence the world's largest physical futures trading exchange.

Investors Check: Depository Receipts

PAGE

A negotiable financial instrument issued by a bank to represent a foreign company's publicly traded securities. The depositary receipt trades on a local stock exchange. Depositary receipts make it easier to buy shares in foreign companies because the shares of the company don't have to leave the home state. When the depositary bank is in the U.S., the instruments are known as American Depositary Receipts (ADRs). European banks issue European Depositary Receipts, and other banks issue Global Depositary Receipts (GDRs). American Depository Receipts (ADR):- A U.S. dollar-denominated equity share of a foreign-based company available for purchase on an American stock exchange. American Depositary Shares (ADSs) are issued by depository banks in the U.S. under agreement with the issuing foreign company; the entire issuance is called an American Depositary Receipt (ADR) and the individual shares are referred to as ADSs. Depending on the level of compliance with U.S. securities regulations the foreign company wishes to follow, the company may either list its shares over-the-counter (OTC) with low reporting requirements or on a major exchange like the NYSE. Listings on the latter exchanges generally require the same level of reporting as domestic companies, and also require adherence to GAAP accounting rules. Foreign companies that choose to offer shares on U.S. exchanges gain the advantage of a wider investor base, which can also lower costs of future capital. Even though ADSs represent real claims to foreign shares (and could be converted if the investor wished to do so), there is currency risk involved in holding them. Fluctuations in the currency exchange rate between the USD and the foreign currency will affect the price of shares as well as any income payments, which must be converted into U.S. dollars. Global Depository Receipts (GDR):A bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches. A financial instrument used by private markets to raise capital denominated in either U.S. dollars or Euros. These instruments are called EDRs when private markets are attempting to obtain Euros. European Depository Receipts (EDR):A negotiable security (receipt) that is issued by a European bank and that represents securities which trade on exchanges outside of the banks home country. Abbreviated as "EDRs", these securities are traded on local exchanges and used by banks - and issuing companies in the U.S. and other countries - to attract investment capital from the European region. Also known as "Euro Depository Receipts", which may or may not imply that the euro is the currency the receipt is issued upon. While the euro isnt the only currency that can be used to issue and trade European Depository Receipts, it is the most common because of its widespread adoption in Europe. American Depository Receipts (ADRs) are the equivalent of this type of bank receipt in the U.S. Investors in EDRs are entitled to the same dividends and capital gains as the investors who hold common shares in the same company. INDIAN DEPOSITORY RECEIPTS (IDRs):As per the definition given in the Companies (Issue of Indian Depository Receipts) Rules, 2004, IDR is an instrument in the form of a Depository Receipt created by the Indian depository in India against the underlying equity shares of the issuing company. In an IDR, foreign companies would issue shares, to an Indian Depository (say National Security Depository Limited NSDL), which would in turn issue depository receipts to investors in India. The actual shares underlying the IDRs would be held by an Overseas Custodian, which shall authorize the Indian Depository to issue the IDRs. The IDRs would have following features:

Economics is extremely useful as a form of employment for economists -John Kenneth Galbraith John (1908 - 2006)

Investors Check Continued

PAGE

Overseas Custodian: It is a foreign bank having branches in India and requires approval from Finance Ministry for acting as custodian and Indian depository has to be registered with SEBI. Approvals for issue of IDRs: IDR issue will require approval from SEBI and application can be made for this purpose 90 days before the issue opening date. Listing: These IDRs would be listed on stock exchanges in India and would be freely transferable. Eligibility conditions for overseas companies to issue IDRs: Capital: The overseas company intending to issue IDRs should have paid-up and free reserve of at least $ 100 million. Sales turnover: It should have an average turnover of $ 500 million during the last three years. Profits/dividend: Such company should also have earned profits in the last 5 years and should have declared dividend of at least 10% each year during this period. Debt equity ratio: The pre-issue debt equity ratio of such company should not be more than 2:1. Extent of issue: The issue during a particular year should not exceed 15% of the paid-up plus free reserves. Redemption: IDRs would not be redeemable into underlying equity shares before one year from date of issue. Denomination: IDRs would be denominated in Indian rupees, irrespective of the denomination of underlying shares. Benefits: In addition to other avenues, IDR is an additional investment opportunity for Indian investors for overseas investment.

Buzz Words
Boomernomics: An investing strategy that involves buying equities directly related to the spending behaviour of baby boomers. Mothballing: A desirable production strategy for a company that has high operating costs, mothballing allows a factory produce goods upon demand instead of on a continual basis. Channel Stuffing: A deceptive business practice used by a company to inflate its sales and earnings figures by deliberately sending retailers along its distribution channel more products than they are able to sell to the public. Blitzkrieg Tender Offer: A takeover offer that is intended to be so attractive that very few objections will arise and the takeover will occur swiftly. In German, blitzkrieg (lightning war) refers to a surprise offensive that is both powerful and swift and was used to describe World War II bombing raids.

Economics is extremely useful as a form of employment for economists -John Kenneth Galbraith John (1908 - 2006)

IS INDIA READY FOR SWF?


Arkapratim Basu (Jr Finance) - FOR There are three things about SWFs which make governments in the West apprehensive: their size, their ownership by foreign governments and the opaqueness of their motives. While the amounts invested and the equity stakes obtained so far are still relatively small, the resources that the SWFs command are vast (expected to touch $12 trillion by 2012) and reflect a transfer of financial power from the West to the East. To be sure, unlike hedge funds, SWFs havent so far shown any intrusive or destabilising tendencies. Also, Singapores Temasek, Abu Dhabi Investment Corporation and Norways fund have passed IMFs preliminary scrutiny on transparency. That, however, has not overcome the western worlds paranoia of SWFs. Ashish Bhagat (Sr Finance) - AGAINST

PAGE

Currently, the pros and cons for the establishment of an Indian sovereign wealth fund (SWF), as generally understood now, are still under debate. India is watching with great interest the development of global codes, standards and practices in regard to SWFs, both in view of the presence of SWFs in the Indian financial markets and the ongoing debate on establishing an Indian SWF. YV Reddy, Reserve Bank of India (RBI) Governor, at a Washington roundtable conference on April 14, 2008.

Clearly, there is much to think about before India can embark on the path of establishing an SWFa state-run portfolio fund that invests in a product mix of different fixed income, equity, commodity and realty instruments to garner better returns because of higher risk tolerance. Hence, it is different from the existing foreign exchange reserves, which are invested in Should India join this elite club by setting up its own SWF? safe but low-paying US treasury bonds. Indias foreign currency reserves exceed $300 billion, which are invested in low-risk OECD government securities and Although the debate for an SWF had started some years ago, bank deposits yielding less than 4 per cent. Indeed, the cost its clamour has increased only now, primarily because the of creating and sterilising these reserves is far more than governments mounting reserves are in dollarsa currency the returns they yield. When one considers that Temasek whose value is steadily declining. Forex reserves, which stood has earned 18 per cent on its $100 billion portfolio and Harat $312 billion on April 4, 2007, have been further hurt by vard University 13 per cent on its $35 billion endowment sharply lower interest rates in US treasuries at 2% to 3%. since inception, there appears to be a strong case for setting up an Indian SWF. Hence, the RBI has been incurring a high quasi-fiscal cost losing money on every dollar being remitted into the country There are, however, weighty reasons for India to proceed due to the cost of sterilisation (converting the dollar into the with caution. Unlike oil exporters or China, India has built up rupee)and the money earned from the US treasury bonds. her forex reserves from capital inflows rather than export earnings. Other countries have amassed large reserves from The din to set up SWFs had also increased because of some current account surpluses or export of staple commodities new developments. West Asian nations, oil-rich Gulf states like oil, whereas Indias reserves have arisen mostly from and cash-rich Asian countries have started playing an imporcapital flows such as foreign direct investment (FDI), portfo- tant role in cross-border investments, as evidenced in the lio flows from foreign institutional investors, external com- recent instances of Citigroup and Merrill Lynch being bailed mercial borrowings and short term credit. out by the likes of Abu Dhabi and Singapore SWFs. Hence, Unlike them, India faces a current account deficit as well as fiscal deficit. In that sense, it is a dollar deficit country. Its increasing reserves also reflect, in part, the lower absorption capacity of the economy, which may pick up with the economy moving on to a higher growth trajectory. In such a situation it is very difficult to define the adequate level of reserves and identify the excess that could be diverted to riskier assets for a higher return. there has been pressure from various quarters, including those from the Prime Minsters Economic Advisory Council, to set up SWFs. Not just to improve returns on at least part of the foreign exchange reserves, but also to help the country play a bigger role in geopolitical and economic strategy. Not ready.... But whether India is ready for an SWF is the moot question. Clearly, the two conditions that have helped other nations launch SWFsconsistently high current account surpluses and huge earnings from exports of commodities such as oil and gasare missing from India. China and Singapore are the best examples of the former, while Abu Dhabi fits in best in the next category.

These technical considerations justify the need for caution, but do not negate the case for SWF altogether. So long as emerging economies including India promise a larger return on capital than developed countries, they will continue to attract capital inflows. Moreover, as Indias forex reserves For instance, India, apart from having a relatively high curpile up, so do their costs. rent account deficit ($5.4 billion in the third quarter of 2007And, it is nobodys case that India should put all or even 08) also has an unsustainably high trade deficit of $80.5 bilmost of her reserves into an SWF. A modest proportion of lion (2007-08). around 15 per cent seems safe enough.

Secondly, India remains a huge net importer of oil and gas (oil imports touched $61.16 billion in the first 11 months of 200708) and also has a relatively high fiscal deficit3.3% of GDP. On the corpus there are also differences. While the government has stated it is ready with a $5 billion package, experts believe it is far too little to play an effective role in global affairs. Says Ajay Shah, Senior Fellow at the National Institute of Public Finance and Policy: "India has to have an SWF of at least $100 billion to be of any consequence."

PAGE

Quiz
Q1. A form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up. Q2 A theory stating that an investment firm that passes all capital gains, interest and dividends on to its customers/shareholders shouldn't be levied at the corporate level like most regular companies. Q3 Aegon Religare Life Insurance is planning to enter which segment? Q4 Which Bank has tied up with Crisil Risk Solutions, a division of Crisil Ltd, to help meet the advanced Basel II approaches. Q5 Name the investment bankers appointed by Larsen & Toubro to advise on a possible deal with the scam-tainted Satyam Computer Services. Q6 When were the Basel II norms for banking supervision implemented?

The most important benefit of population size and growth is the increase it brings to the stock of useful knowledge. Minds matter economically as much as, or more than, hands or mouths- Julian Simon

An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today. Laurence J. Peter (1919 1988)

Crosswords
Across 2.

4.

5. 7.

In which country did the world's first paper money appear? A negotiable certificate of deposit representing one or more shares with a face value denominated in US dollars and the dividends of which are also paid in US dollars. What is a coin with a minting error called? Which is the oldest stock exchange in Asia?

Down

1. An act of selling commodity at different prices in different markets is termed as 1

Modern man drives a

mortgaged car over a bondfinanced highway on credit-card gas. Earl Wilson

2. A speculator in the stock market who believes that prices will go down is called 4. The sale of a block of bonds and the purchase of another block of similar market value is called
5

6 7

EclipseCrossword.com

Education is both a tool of social justice as well as a fundamental driver of economic development. Kevin Rudd

Real Effective Exchange Rate (REER)

PAGE

The weighted average of a country's currency relative to an index or basket of other major currencies adjusted for the effects of inflation. The weights are determined by comparing the relative trade balances, in terms of one country's currency, with each other country within the index. This exchange rate is used to determine an individual country's currency value relative to the other major currencies in the index, as adjusted for the effects of inflation. All currencies within the said index are the major currencies being traded today: U.S. dollar, Japanese yen, euro, etc. This is also the value that an individual consumer will pay for an imported good at the consumer level. This price will include any tariffs and transactions costs associated with importing the good. The rupees sharp depreciation against the dollar since the beginning of last year has begun reflecting in the Real Effective Exchange Rates (REER). According to the Reserve Bank of Indias November bulletin, the REER retreated to 103.67 against a six currency basket. In April last year, the index was 112.16. The six currency basket with a base of 1993-94 comprised the US dollar, Euro, Yen, Pound Sterling, Hong Kong dollar and Renminbi Yuan. In this basket the US dollar and the Euro have the highest weights at 28.19 per cent and 35.12 per cent. Measures to be taken :RBIs forex swap window will help Re The weights reflected the bilateral trade between India and the regions represented by currency basket. The drop in the REER brought it closer to the levels of 2000-01 when it was 102.82. Rupees done with falling thats good :-The Nominal Effective Exchange Rate (NEER is the weighted average of nominal exchange rates in the currency basket against the home currency) since the beginning of last year was 62.58, lower than its April level of 70.63. Fall against Yuan sharpest:- A fall in the index implied a depreciation of the rupee against the respective currencies. Since the beginning of last financial year, the rupee depreciated by 19 per cent against the US dollar. But the rupees depreciation against the Yuan was the sharpest, by over 20 per cent for the same period. For the same period, the Yuan depreciated only 2.7 per cent against the US dollar. The depreciation of the rupee against the Yuan was indicative of the high trade between the two countries. The high trade was also evident from the increased weightage of the Yuan in the currency basket. At the beginning of the decade, the Yuans weight in the currency basket was 4.65 per cent. The Yuans weight currently is 11.96 per cent. A falling REER and the NEER normally indicate an improved export competitiveness regime. Export growth in October last year dipped 15 per cent on year on year basis or a little over 20 per cent if the petroleum sector is excluded. If in the initial years the rupees appreciation was on account of massive capital inflows, the correction in the REER since the beginning of this year was largely driven by capital outflows, in particular an exodus by foreign institutional investors. FII have pulled out about $13.8 billion since the beginning of last financial year. In addition, oil prices also contributed to the REER correction. Oil prices averaged $74 a barrel in October last year as against $ 105 in April last year. On a year-on-year basis however, oil prices were lower by $ 5 a barrel, though the lower prices were offset by higher imports during the period. Indias current level of petroleum imports are about 2.8 million barrels a day, according to estimates made by the International Energy Association. Last year, the average imports into the country were at the rate of 2.4 million barrels per day at $ 79.21 a barrel. Last year, the import basket prices between April and October averaged about $95 a barrel.

An economist is a surgeon with an excellent scalpel and a rough-edged lancet, who operates beautifully on the dead and tortures the living-Nicholas Chamfort (1741 - 1794)

Commodities Market

PAGE

10

COPPER SPOT PRICE: (Per Kg) 185.15 FUTURE PRICE: (Contract expiring on 30/Apr/2009) 189.70 Copper is a very important element and the oldest known commodity in the world that directly affects the worlds economy. It stands at the third place in context of the world consumption after steel and aluminum. It is largely used in electrical appliances, as it is the cheapest metal, which is a good conductor of electricity. It is also considered safe as a raw material in wire making. Alloys of copper like bronze, brass, Monel and speculum metals are also very popular and are extensively used throughout the world. Market Influencing Factors Price fluctuations of copper in London Metal Exchange Production level of copper in the world Growth prospects of the major copper consuming countries of the world Growth prospects of the various consuming sectors in the market

Copper prices are trading sideways with immediate support for MCX April contract is seen at Rs.183.70. Further below, crucial support is seen at 179.70 levels. Whereas resistance is seen at Rs.189.90 levels & further upwards at Rs. 191.85. The 5 day moving average supports the current rally. A short run bullish view of copper can be inferred with the rising price, increasing volume & open interest. Recently the RSI was in overbought territory but due to the selling pressure it has reached a safe zone thus the rally is expected to continue in the remaining days of the contract. But it seems current month copper contract is forming a Rounding Top hence traders are advised to be extremely careful & should trade with stop loss at slightly below support levels. Indian copper market India does not provide a big market for copper. Due to shortage of copper mines and a low percentage of productivity of copper in the mines, India suffers a loss in the level of production and it has to completely depend on the copper ore imports. Also, not many companies are indulged in the refining and extraction of copper from its alloys and ores. India produces copper from the imported copper ore that accounts to around 6 lakh tons of production. This production level is contributes to a mere 4% share in the total copper production in the world. Indian market is divided into three parts i.e. primary and secondary. Primary segment comprises of the producers that convert copper ore into refined copper. Three companies namely Hindustan Copper ltd, Birla Copper and Sterlite Industries constitute this primary segment. Secondary segment comprises the producers that manufacture value added products made from copper like wires, foil etc.

PAGE

11

The domestic consumption demand of copper is around 5.5 lakh tons in the country. A major percentage i.e. 10% of the total consumption in India is contributed by the two major telecommunication providers namely BSNL and MTNL. The rest of the demand is contributed by the construction and automobile sector. India has always been an importer of copper ore to satisfy the domestic consumption demand. The countries from the ore is imported into India are Chile Indonesia Australia Canada But, due to the rise in the production of the three major players in the Indian market, the country is now emerging as a net exporter. The production of copper has significantly during the last few years that has enabled India not only to satisfy it is own domestic demand but export refined copper in small quantities. The prices of copper in Indian market are highly dependent on the prices in London Metal Exchange. Disclaimer: The mentioned ideologies in this report are based on the research done by the Chaanakya Team of Christ University Institute of Management. The team & the institution will not be responsible for any kind of losses incurred by any party either directly or indirectly based on our research results, though we have presented the best of our knowledge.

ALUMNI SPEAK
NAME: Sonal Shrivastav CURRENT ORGANIZATION: DTZ WORK PROFILE: Consulting PERSONAL MAIL_ID: sonal1602@gmail.com CONTACT NUMBER: 09833976622 BATCH: 2005-07 CURRENT LOCATION: Mumbai
is a sletter his new n t e bee I think initiativ ood nce stu very g the fina lot p by ally is taken u h actu whic uch dents, h a to dge wit wle zles, of kno e Puz like th p iz. Kee of fun and Qu ords Crossw uys! it up G

EXPERIENCE IN THE ORGANIZATION: The experience is definitely quite an enriching one, especially in terms of value addition to my professional life. Being a part of a smaller team has always been an advantage as it brings with it lot of responsibilities and in turn lot of learnings and growth on personal and professional front. MESSAGE FOR THE STUDENTS: Always remember "He who has done his best for his own time has lived for all times." ALL THE BEST!

PAGE

12

ALUMNI SPEAK
NAME: Divya Nair CURRENT ORGANIZATION: Kotak Securities PREVIOUS ORGANIZATION: Citi Group WORK PROFILE: Stock Market (Dealer) PERSONAL MAIL_ID: divyanair.s@gmail.com CONTACT NUMBER: 09920216047 BATCH: 2004-06 CURRENT LOCATION: Mumbai EXPERIENCE IN THE ORGANIZATION: Kotak is a good place for one to start off their career in the markets. It functions just like a corporate and has both bitter and sweet experiences. On the whole, a good place for learning and building character which is essential to reach the top. MESSAGE FOR THE STUDENTS: Hang in there! Dont let the R word daunt you. It only signals the best times ahead. Please take more than advantage of the faculty that CUIM offers, you will know why once you graduate. ALL THE BEST!

Crosswords Answers
1

TEAM
Senior Coordinators Sebin Sasmit

C
2 3

I N F

N
4

A N A R
6

R H

O S
7

A B A N K S

Y S

E D G E

Juniors Abhinav Nitin Arkapratim Maria Investors check Investors check/REER Debate Quotes/ National news Megha Paloma Meryn Noopur Archana Gyanesh Hitesh Quiz,Did You Know, Graph, Buzz Words, Financial Scandals Int. news/Interview Coordination & Commodities Mkt Compiling & Editing Design, Crosswords, Compiling & Editing

EclipseCrossword.com

Quiz Answers 1. Green Field Investment 2. Conduit theory 3. Health insurance 4. IDBI Bank 5. Citigroup and Nomura 6. 2004

Please mail your valuable feedbacks, reviews at chaanakya.ccim@gmail.com