General Awareness Potpourri II

   

General Awareness Potpourri II

Why is this article relevant for IBPS / SBI Bank PO, RRB and Other Bank Exam Aspirants?

Almost all exams including IBPS PO, IBPS RRB, SBI PO evaluate students on their knowledge of Banking General Knowledge and Current Affairs. This section is not only high scoring but also has high cut-offs. To ensure that you do well in this section, you need to ensure that you are regularly in touch with the latest news in the banking world and the economy.

What is Dollar Debt?

A dollar-denominated debt is one measured in dollars. For instance, when the US borrows money it sells bonds with values listed in dollars. The US then pays bondholders interest (and eventually the principal) in dollars. It may seem perfectly ordinary for a country to borrow in its own currency, but many developing countries have unstable currencies, so must borrow in foreign currencies. When a country must borrow in a currency it does not control, it is potentially vulnerable to defaulting on its debt if its economy weakens and the government is unable to trade domestic currency for the currency it needs to service its debts.

Dollar Debt in case of India:

Fund mobilization by Indian companies by selling dollar-denominated bonds went up by about 90% to a record high of $15.2 billion in 2017, according to Bloomberg data. There could be two ways of looking at this development.

First, the POSITIVE: This is not only allowing Indian companies to mobilize funds at a cheaper rate, but is also helping fund investments at a time when a large part of the Indian banking system is reluctant to lend. The stable domestic macroeconomic environment, upgrade in credit rating and the appetite for Indian paper in the global market are likely to enable more companies to raise dollar debt.

Second, the NEGATIVE: Increasing reliance on foreign sources for debt capital has risks. The inflow of a large amount of foreign debt could increase external liability, put pressure on the rupee and affect exports. In 2017, the Reserve Bank of India made large interventions to keep the currency stable.

CONCLUSION: Policymakers need to carefully weigh the costs and benefits of foreign debt in the present economic circumstances.

 

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Is it time for Indian Sovereign Fund?

What is a Sovereign Wealth Fund?

A sovereign wealth fund (SWF) consists of pools of money derived from a country's reserves, set aside for investment purposes to benefit the country's economy and citizens. The funding for a sovereign wealth fund (SWF) comes from central bank reserves that accumulate as a result of budget and trade surpluses, and from revenue generated from the exports of natural resources.

So, is it time for Indian Sovereign Bond?

India does not need any foreign exchange right now. In fact, the central bank is struggling to mop up the excess dollars flowing into the country. The reason why a few sovereign bonds of different maturities could make sense is that the pricing can act as a benchmark for Indian corporate borrowing in international bond markets, so the sovereign bond need not be for a large amount of money.

 

Why is the RBI concerned about Currency movement?

The Indian rupee has all along been an important contributing factor in the making of the monetary policy.

DIRECT INTERVENTION: In case of any currency movement, a country’s central bank can directly intervene to either push the currency up or to keep it artificially low. To push up a currency, a central bank can sell dollars, which is the global reserve currency, or the currency against which all others are measured. When it needs to keep its currency lower, it can buy dollars to the point where they are the largest holders of dollar-backed US Treasury paper.

INDIRECT INTERVENTION: The central bank can also intervene indirectly by regulatory action, as the RBI has done like in case of Interest rates on FCNR and EEFC accounts.

The RBI intervenes in the currency markets because a weaker currency pushes up the country’s import bill – you pay more rupees for the same amount of dollars – and contributes to the current account deficit. It is also indicative of a country’s economic health and a weaker currency is a signal to investors that the economy is not being well-managed. India has a huge import bill largely because it buys almost 70 per cent of its oil from abroad, and a weak rupee can wreak havoc with the government’s finances.

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Why is the RBI buying Dollars?

The rupee owes its rise to two factors: strong capital inflows and a shrinking current account deficit. According to market experts, the primary motive appears to be to boost reserves. This helps in increasing the import cover to the RBI’s comfort zone of around 9 to 10 months. This provides a buffer in the event of a large upward move in energy prices. Another reason for the RBI in bolstering reserves is hike in interest rates in the US. This could see an exodus from the bond market, destabilising the forex market. This is because the FIIs will have better yields in the US than in India. The other objective behind the sustained dollar buying could be to maintain currency stability. This is important to balance Current Account Deficit, exports and imports.

Therefore, to maintain stability of currency, central banks take many measures to attract foreign investments to balance level in foreign exchange reserve. So, now hoarding of foreign exchange reserve acts as a insurance to maintain currency volatility against world's reserved currency, which in turn help central banks to create conducive macroeconomic stability.

 

GST on Petrol - Not so simple!

Finance minister Arun Jaitley has made a statement in the Rajya Sabha in December of 2017: The government is in favour of bringing petroleum products under the ambit of the goods and services tax (GST). This is not the first time this government has spoken of it; back in September, petroleum minister Dharmendra Pradhan has brought this to the fore.

The resistance is the states. Read it as VAT.

Value-added tax (VAT) on the five petroleum products that are out of GST—including petrol and diesel—is the gold mine of the states. The revenue, which consists in some states of a specific levy as well as an ad valorem rate, makes up a major chunk of their finances.

The wide variance in VAT between states, the complexity of having some petroleum products (like Bunker fuel) under GST and not others and the potential boost to a number of sectors by bringing all petroleum products under GST make the switch a good idea.

But convincing the states (19 states have BJP government)... This is not so simple. And, managing the revenue loss remains the major hurdle.

 

Source: https://muddywatermacro.wustl.edu/dollar-denominated

http://www.livemint.com/Opinion/Jl7t8YqXHPgOlhl0WExYwI/Dollar-debt.html

http://www.livemint.com/Opinion/iG0cEtNmBycl3iQUzQzR0N/GST-on-petrol-The-unfinished-business.html

http://profit.ndtv.com/news/corporates/article-rupee-what-exactly-is-rbi-intervention-304471

http://www.livemint.com/Home-Page/xTozarI6irAnsUXftiY9SO/Four-central-concerns-for-central-bank.html

https://www.investopedia.com/terms/s/sovereign_wealth_fund.asp

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 Also Read General Awareness Potpourri I

Read 275 times Last modified on Monday, 16 April 2018 14:55
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