Finance Fortnightly Since 2011
August 19th, 2013 - Issue 27
In News Now
NSEL fiasco and
A snapshot of
What you need
As always, we bring to the latest hap-
penings from the world of finance.
Emerging Economies Losing
Luster: A Myth
Have the Emerging Market Economies
permanently lost their sheen? Read on to
Companies Bill 2012
The long awaited bill finally gets passed.
Here is a ready reckoner of all the impor
9 Gold Rush?
"Buy gold and sit on it" was the standard
saying. Does it still hold true?
Loan Jargons Demystified!
Harshal Mehta, Irina Goel, Paridhi Dixit,
Prasanna Pujari, Sagar Shetty, Saurabh Prasannaraj,
Utkarsh Ojha, Vrinda Ailani
Issue 27 - August 19th 2013 - FINly | 3
Raghuram Rajan Finally
The government on 6th Augusts, 2013, named
chief economic advisor Raghuram Rajan as the
new Reserve Bank of India governor for a term
of three years.
Dr Rajan, is a former IMF economist, visiting
professor to the World Bank and US Federal Reserve Board. He was one of the few economists who predicted the 2008 credit crisis.
Rajan takes over from Dr. D Subbarao on 4 September. He takes over the reins of the central bank at a time when the economy is facing crisis, the Indian Rupee (INR) is on a free fall, equity and bond markets are nervous and the
government at the center wants quick fixes before the 2014 general elections. The challenge before him is to frame policies so as to control
inflation and boost economy.
Adding to already critical economic conditions of India, Financial Technologies promoted National Spot Exchange suspended trading from 1st August, 2013 in most of its contracts and deferred payouts to its members, triggering fears of a default.
The government has swung into action and asked Forwards Markets Commission (FMC), to probe into NSEL’s trading suspension.
NSEL launched contracts with more than 11 days tenure, while spot exchanges are not allowed to offer such contracts. The exchange also reportedly allowed members to do short selling, which is not permitted on spot exchanges, where delivery of the commodity traded is mandatory. The government raised objections on NSEL’s functioning, and on 12 July directed the exchange not to launch any more such contracts, also to settle all existing contracts on the due date. On 31 July, NSEL stopped trading in all contracts, barring e-Series, and also deferred payments to members, triggering fears of a default. The general assumption is that a fall in trading volumes on the exchange could have triggered a liquidity crunch. The fears of a payment default are looming large. At stake is Rs. 5,600 crore of investor money in NSEL. In response the exchange has declared a settlement plan of 30-week schedule to clear investor dues. FMC has raised various critical issues about NSEL and has called for a forensic audit of NSEL’s books. .
PMO is also planning to set up a special team headed by economic affairs secretary to look into the issue.
4 | FINly - Issue 27 - August 19th 2013
Emerging Markets Losing Luster: A Myth
The Emerging Markets (EMs), supposedly the 21st-century juggernauts have not fared well in the past year. The question now is whether this downfall is temporary or have they permanently lost their edge. In the past decade, the 21 EM economies have performed stupendously well jumping from 38% of world output to 50% (in PPP terms); Refer to Exhibit I for the break-up.
Graph showing the declining performance of emerging markets compared to developed markets
These EMs, predominantly the
BRICS nations, have also pulled
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