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COVER
STORY
Dealer's
Dilemma -- K Seethapathi T Jyotsna
Forex
market is a place for both fortunes and misfortunes. The market
demands that the forex dealers are very thoughtful and spontaneous.
The possibility of making losses is far more than making profits.
The mechanics of trading are very intricate and every dealer
should constantly follow the market trends and ensure that
he is not building up excessive positions. The RBI as well
as FEDAI have imposed certain rules for the traders to prevent
them from engaging in speculations. To know the intricacies
of forex dealing, read on.
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Financial
Futures: The Existential Dilemma -- Vivek Jain
The
concept of derivatives is not a new one. In India, derivative
instruments are making their way into the Indian financial
markets. The market participants now have an access to a host
of instruments such as stock futures, index futures, interest
rate futures, stock options etc. These instruments can be
used by the market participants to hedge their various exposures.
It has been observed in the Indian capital markets that the
volumes in the derivatives segment are more than those that
in the cash segment. In the month of January 2004, the turnover
in the derivatives segment was 241% more than that of the
cash segment. But unfortunately, trading in the interest rate
futures had a lackluster time soon after their launch on the
National Stock Exchange (NSE). As of now, the trading in the
interest rate futures is zero since Spetember'03. Read on
to find the possible reasons.
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TREASURY
Bond
Markets: A Primer -- Shilpa M Rao
Bond
market is the building block for any economy. Developing a
strong bond market is a complex task. It needs a thorough
understanding of the market. This article gives the reader
a clear understanding of bond markets. It highlights the significance
of bond markets for the growth of an economy and explains
different types of bond markets, various bond market instruments,
and the role of credit rating agencies in bond markets. The
factors influencing bond markets are also enumerated at the
end of the article.
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Gold:
Will the Glitter be Lost? The Golden Paradox and India -- G Alivelu
In
olden days, gold was considered to be a safe investment. Currently,
gold price is sky-high and it is surprising that this price
rise has come when the demand for gold is low. In India, the
use of gold forms a part of the country's culture and tradition
and is not considered as a mere investment. Before the liberalization
policies, gold price in India was mainly based on domestic
inflation, stock market performance and the demand-supply
factors. But after the NEP, the Indian gold market was associated
with international factors like currency exchange rates. The
low interest rate in the economy can also be a reason for
the increase in gold price. So, this price hike can be capitalized
by investors by liquidating the part of the gold holdings.
This is only a short-term phenomenon.
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RISK
Weather
Derivatives -- R Bhaskaran
Most
of the industries in the world are directly or indirectly
affected by weather changes. of late, due to the adversity
of the green house effects and burning of fossil fuels, weather
has turned out to be much more unpredictable. Weather risk
can be defined as an uncertainty in the occurrence of normal
weather conditions affecting, each and every business enterprise
either favorably or adversely. Thus, weather derivatives come
into play to hedge this weather risk. The growth that weather
derivatives are able to accomplish is very high. Although
the importance of weather is felt in different industries-utility,
gas and power, the energy and insurance sectors dominate the
market.
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Real
options: A strategic tool -- Arindam Banerjee
Credit
risk is an effect, that unanticipated changes in the interest
rate have on the value of the firm. Hedging of credit risk
is an important part of the total risk management in a firm,
as it is difficult to predict the unforeseen change in the
interest rate. In order to minimize this risk, the first task
is to quantify credit risk. This article discusses the Mathematical
model of valuing credit risk developed by Robert Merton, inspired
by the famous Black-Scholes model of option pricing theory
and application of the model in valuing credit risk in the
loan portfolio of a bank.
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FOREX
India's
Changing Role in IMF -- Sanjeev Kumar Nitin Tulsian
IMF
is the Principal International Monetary Institution, established
to promote a cooperative and stable global monetary framework.
India, which was a borrower from International Monetary Fund
and World Bank funds for a long time, has now been selected
by the IMF as a lender. This is due to the fact, that the
Indian economy is one of the fastest growing economies after
a long recession. This article discusses the various roles
played by IMF and India's contribution to the IMF.
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