Professional Documents
Culture Documents
International Finance 1
International Finance 1
CURRENCY BOARDS
Another system of pegging the value The board must maintain the currency reserves for all the currency that it has printed. Currency board for a longer period, raises the confidence. However Government needs to convince the investors. Currency boards and interest rates Exchange rate movements
INTERNATIONAL ARBITRAGE
Locational : Differences in the exchange rates. Capitalising on the disrepencies Bid/Ask spread makes the difference Realignment of forces Triangular: Cross exchange rates Covered Interest: Taking advantage of interest rate differentials
INLFATION
Not to be equated with high prices. Coverage keeps increasing There is no absolute rate Individual prices are under constant adjustment No predetermined set of causes and effects Expectations of further rise. Tendency of the suppliers Alteration of asset preferences Inequality of incomes
Contd
Oligopolistic tendencies Strong trade unions Demand elasticities Increase in supply of money Erosion of capital formation Balance of payments problem Hidden tax
MONETARY POLICY
Instruements Repo Rate CRR Open Market Operations Limitations: Supply side bottlenecks are not taken care of Marginal efficiency of capital is important
Contd
Kashinath travelled 40 km to come to mandi at Nasik. He sold 1,000 cauliflowers for Rs 750, considerably less than the price yesterday. Mandi charges aside, there also a 7% commission to be paid to the agent who facilitated the auction of vegetables.
FISCAL POLICY
Policy related to public revenue and expenditure Problems: Burgeoning non plan expenditure Tax evasion and avoidance Dependence on indirect taxes FRBM Act 2004 (i) Misgivings about revenue deficit (ii) Low levels of capital expenditure (iii) Neglect of equity and economic growth (iv) Flawed assumptions of the act