tag:blogger.com,1999:blog-19649274.post7409130446035219686..comments2024-03-18T08:59:55.045+05:30Comments on The Leap Blog: The rupee: Frequently asked questionsAjay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger25125tag:blogger.com,1999:blog-19649274.post-61078247475779214022013-09-05T09:59:14.435+05:302013-09-05T09:59:14.435+05:30RBI has a balance sheet where liabilities are the ...RBI has a balance sheet where liabilities are the total number of rupees issued. Against this it has certain assets which are Indian government bonds, US government bonds, etc.<br /><br />As in any balance sheet, the assets and liabilities must equal.<br /><br />When RBI sells dollars, it gets rupees which are taken out of circulation. The assets and liabilities of RBI both go down. This is a monetary tightening.Ajay Shahhttps://www.blogger.com/profile/03835842741008200034noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-67904214731998282892013-09-05T08:40:33.260+05:302013-09-05T08:40:33.260+05:30"Second, when RBI sells dollars and buys rupe..."Second, when RBI sells dollars and buys rupees, this sucks liquidity out of the market. The side effect of selling dollars would be a sharp rise in domestic interest rates."<br /><br />What does RBI do with the INR that it gets by selling dollars?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-73004885529813733652012-11-07T10:33:07.404+05:302012-11-07T10:33:07.404+05:30Under the random walk, all changes are permanent. ...Under the random walk, all changes are permanent. The best forecast of tomorrow is: What the price is today.<br /><br />If prices were NOT a random walk, then changes are temporary and tend to get erased. The system tends to go back to where it was. The best predictor of the future is not where it is today, but where it had been.Ajay Shahhttps://www.blogger.com/profile/03835842741008200034noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-87562293897160989682012-11-07T10:30:22.247+05:302012-11-07T10:30:22.247+05:30I am talking about dates of structural change in t...I am talking about dates of structural change in the exchange rate regime as identified by <a href="http://www.sciencedirect.com/science/article/pii/S0167947309004435" rel="nofollow">the Zeileis/Shah/Patnaik methodology</a>.Ajay Shahhttps://www.blogger.com/profile/03835842741008200034noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-43316840342143645362012-01-24T23:10:32.102+05:302012-01-24T23:10:32.102+05:30Sir, I really appreciated the comprehensive handli...Sir, I really appreciated the comprehensive handling of INR scenario. It gave me a lot of food for thought. Just a few points for clarification.<br /><br />If intervention in currency market forces interest rates upwards.. that's also contributing to a decrease in inflation. In that sense, it should not hurt India to intervene in the currency market when required.<br />Also, when RBI is increasing the rates in the domestic market that should also serve as a pointer for foreign investors to invest in India to gain from higher interest rates. That would automatically take care of currency appreciation.<br />It could work both ways round. Why it's not working means only one thing. Foreign investors don't want to take any additional risks and they see India as a risky place as of now. <br /><br />Secondly, I don't think INR appreciation only affects topline. It has started affecting the bottomline as well in terms of the energy costs which are a major input for manufacturers. So I think that the outlook is bleaker than you think in the short term. What India needs right now is currency appreciation. That RBI can't guarantee it is understood and means that India will have to wait for more sound policy decisions to reduce the riskiness of its economic environment. Moreover, RBI can at least refrain from making statements that we don't have sufficient reserves to tackle currency markets. That only prompts the financial predators to get harsher. A little push can get dangerous.<br /><br />Having said all that, I do think situation is not going to get any worse :)Paraghttps://www.blogger.com/profile/17543290076815284964noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-9296934323225795182012-01-23T23:31:22.597+05:302012-01-23T23:31:22.597+05:30Random walk never forgets.Random walk never forgets.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-47996193624732730532012-01-09T20:33:35.768+05:302012-01-09T20:33:35.768+05:30Hi Ajay,
Its nice to see the complete details of ...Hi Ajay,<br /><br />Its nice to see the complete details of Rupee vs USD and how RBI cannot do anything in these circumstances. Nice write-up.Manickkamhttp://manickkam.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-55643067517696301772012-01-05T07:36:54.700+05:302012-01-05T07:36:54.700+05:30excellent..idiot question..when u talk about criti...excellent..idiot question..when u talk about critical dates of structural break in exchange rate policy, are u talking of:<br /><br />i) 2003 Budget<br /><br />ii) March 2007<br /><br />iii) april 2009<br /><br />that u refer to midway in your blog?<br /><br />jaggi malkaniJaggi Malkanihttps://www.blogger.com/profile/03893924712034225592noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-4049493572544196702011-12-22T02:16:07.540+05:302011-12-22T02:16:07.540+05:30Dear Rajat/Ajay/Rahul,
On BOP and transactions in ...Dear Rajat/Ajay/Rahul,<br />On BOP and transactions in currency market. The BOP counts transactions by residency, so a transaction between two residents in a foreign asset (say, USD) would not be shown in BOP (it would be counted in the year/period in which the resident first acquired the asset from a non-resident), unless these transactions are accompanied by counterpart foreign currency transactions with the non-resident banks of these parties. The same for a transaction by two foreigners in an Indian asset. Only cross-residency transactions are counted. <br />However, these transactions lead to changes in international investment position (changes in the external assets/liabilities of the sectors involved) and are counted there. <br /><br />I am sure there are other factors leading to the discrepancy, but this is one.<br />Best<br />GGurnainhttps://www.blogger.com/profile/07943713231998130562noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-88678300188819792011-12-13T21:23:09.965+05:302011-12-13T21:23:09.965+05:30Great insight to Re-USD. Thanks Ajay. I think it&#...Great insight to Re-USD. Thanks Ajay. I think it's always better let the market determine the rate rather than pegging.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-21243137824086462652011-12-13T14:20:35.103+05:302011-12-13T14:20:35.103+05:30Dear Ajay,
What does the rupee depreciation mean ...Dear Ajay,<br /><br />What does the rupee depreciation mean in the big picture? <br />Is it fluctuating because of speculation and is it as serious as The Asian crisis or the one inflicted by Soros in the past?<br /><br />Or is the India growth story a temporary phenomenon just<br />happened because of easy money available between 2002 and 2008?<br /><br />Will the Indian rupee crash to 75 as feared by Anonymous?<br /><br />Appreciate if you can talk about big picture. thanksUnknownhttps://www.blogger.com/profile/02621397573030460211noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-33298445829378770082011-12-11T20:29:34.691+05:302011-12-11T20:29:34.691+05:30indian economy like many emerging economy was a be...indian economy like many emerging economy was a beneficiary of cheap money since 2002 and indians thought that they have entered a new era...the crash in indian economy will take place via rupee crashing to 75 vis a vis dollar in short order...<br />the leverage the indian IT enjoyed for some time is also fast disappearing as many jobs are being outsourced to vietnam, phillippines and even bangladesh...<br /><br />60-75% of the indian foreign reserves are owned by outsiders and can quickly flee...And indian RE is poised for a monumental crash as well...50% of FII money in india come from euro zone that is delevergaing w/ vengeance...<br />India will face the dark forces of liberalization as they been enjoying the positive side for about 20 yrs// but the dark forces often undo good work of a decade in a jiffy..Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-12374745065534696272011-12-10T22:51:28.061+05:302011-12-10T22:51:28.061+05:30Hello Ajay Sir/Mr. Rajat ,
When we say 8 billion ...Hello Ajay Sir/Mr. Rajat ,<br /><br />When we say 8 billion , then we meqan total net turnover in USD terms is 8 billion i.e. say I bought 1 billion and then sold the same 1 billion , then total turnover = 2 billion in the capital account .<br /><br />The same holds for current account. If I buy services for 1 billion and sell services for another 1 billion , total current account transaction becomes 2 billion for the day ...Rahul Krishnahttps://www.blogger.com/profile/12550827598772161631noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-64370796781763245902011-12-09T14:28:47.064+05:302011-12-09T14:28:47.064+05:30hi ajay sir,
i am novice but my question is roughl...hi ajay sir,<br />i am novice but my question is roughly $500 million only is the FII outgo as for as the stock market is concerned.You say around $7 billion transaction in a day in currency market.so $500 million(month) to $70billion (day) is nothing.But how could Rupee losing from 47 to almost 52.If we make currency futures delivery based is it possible if so will have any effectsatheeshnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-87437878595266815482011-12-06T23:14:01.824+05:302011-12-06T23:14:01.824+05:30great article, but the point ignored is that of il...great article, but the point ignored is that of illogical market momentum, which can transfer havoc from financial economy to real economy. concerted attack on a country's currency ( not unheard of in currency markets), for speculative gains can easily end up hurting economy in long term as well, specially during an inflationary phase. the dramatic fall of rupee in the last 4 months( perhaps highest amongst currencies of major economies) can not point to normal market response to macroeconomic factors. more vigilance from rbi will not be unwarranted.neerajhttps://www.blogger.com/profile/06603823766023192755noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-12692795459377141132011-12-06T21:30:32.672+05:302011-12-06T21:30:32.672+05:30With reference to Rajat Gupta, I wish to present m...With reference to Rajat Gupta, I wish to present my views on:<br /><br />"That also makes any short term volatility meaningless and eventually the exchange rate should converge to long term fundamentals"<br /><br />Long-term fundamentals is the Pet Phrase in theoretical Economics !<br />Fundamentals are what we cite them out to be - like Inflation rate differentials, BOP surplus/deficits, Interest-rate differentials, investment flows into and out of the Country (after REGAN took over in 1981, it is Investment flows into the US that proppped up the $ vs the DM, as per the ECONOMIST magazine that time), not to speak of, rational (or is it irrational?) expectations of the Market Participants etc. I may be forgiven if I make an unfashionable Comment that there are nothing like Fundamentals or even if excellent Economists establish them through (albeit time-wise and space-wise very limited!) empirical studies, the Fundamentals only remain a notion and not to be taken as proved facts!) I wish to know, based on what fundamentals the $-DM Exchange rate was fixed after the Second World War?<br /><br />Milton Friedman eloquently and elegently argued for a Floating Exchane Rate Syatems (presumably based on Fundamentals) but being an Academic was unfortunately not aware of Market-sharks like George Soros who would make the Markets dance to their Tunes! Fundamentals will take over a Long period of time after the Market-sharks exit with their legally-earned booty !<br /><br />It seems Mathiar Mohammed wanted to shoot George Soros (who was comfortably dining in Hotel Hilton in New York!) during the 1996-97 collapse of the Malaysian Ringget!<br /><br />The observations of Rajat Gupta are commendable from an Academic View Point:My layman's view point is, a good scope for this situation is our opening up the Forward & Derivitavive Trading in our Rs FX-market (I am ashamed I do not have any empirical-study support,as of date, to validate this purely-qualitative observation of mine: I am perhaps imitating the great Galbraith!)<br /><br />As an Academic, I very much commend Rajat Gupta and his Research into Reserve Bank Data: I wish to be benefited by his scholarly observations on the mundane issues raised by me.<br /><br />With Best regards to Rajat Gupta<br /><br />Poolla R.K. MurtiPoolla R.K. Murtihttps://www.blogger.com/profile/13268390079827011335noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-42921592384301595022011-12-05T21:09:56.483+05:302011-12-05T21:09:56.483+05:30A very interesting and timely articleA very interesting and timely articlePankaj Mohtahttps://www.blogger.com/profile/03208616457277452939noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-86103301503652317882011-12-05T11:14:22.386+05:302011-12-05T11:14:22.386+05:30Hi
The BOP break-up is given in the same link - i...Hi<br /><br />The BOP break-up is given in the same link - in an excel - http://rbidocs.rbi.org.in/rdocs/Content/docs/IEPR506300911_NEW.xls<br /><br />The major items are FDI, FII and ECB figures. I have tried to verify the FII investments with data on SEBI website and the numbers are very similar.<br /><br />So, current and capital accounts at max contribute to about $ 8 bn per day of total currency market, out of total 70 bn market.<br /><br />So, I can conclude that roughly 88% of the currency market is determined by trading activities (short term speculation) rather than by fundamental forces of supply and demand for rupee. That also makes any short term volatility meaningless and eventually the exchange rate should converge to long term fundamentals. <br /><br />A probable implication of this is also that RBI should not enter into the market just based on short term volatility.Rajatnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-75897876903967698572011-12-04T20:29:51.722+05:302011-12-04T20:29:51.722+05:30Good note..keep writing...Good note..keep writing...Satyen Kanabar(SK)https://www.blogger.com/profile/04161281999560964756noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-47593237152431014902011-12-03T21:17:29.281+05:302011-12-03T21:17:29.281+05:30Your excellent contributions make me perspire to c...Your excellent contributions make me perspire to catch up!<br /><br />While I have to struggle to digest the Contents of your Contribution and that of Professor Susan Thomas' Paper (cited by you), I have an enquiry first:<br /><br />If you were to take more Data for at-the money-options and apply Professor Thomas Method, what would be the result of 95% Confidence Limit?<br /><br />I am very embarassed, in fact, I must do these Calculations: it is unfortunate, I am not academically good enough to do this onerous task: hence, a request for your erudite comments, if the results by the two methods differ significantly.<br /><br />Best regards<br /><br />Poolla R.K. MurtiPoolla R.K. Murtihttps://www.blogger.com/profile/13268390079827011335noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-13959221376022745662011-12-03T12:53:23.404+05:302011-12-03T12:53:23.404+05:30Interesting article. Particularly the point about ...Interesting article. Particularly the point about increased stability due to decontrolling Rupee. Typo: "Random Walk never forgets" -- probably you mean "random walk never remembers".Anonymoushttps://www.blogger.com/profile/11432726417561187916noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-37134400815968112452011-12-03T11:41:37.234+05:302011-12-03T11:41:37.234+05:30Dear Rajat,
Not all gross turnover on the currenc...Dear Rajat,<br /><br />Not all gross turnover on the currency market shows up in the BOP. I'm not fully competent on how BOP is done, but this is a global phenomenon: We see lots of trading on the currency market, all of which (strictly speaking) should show up in the BOP, but it does not.<br /><br />The rough numbers for the market size today are: $30 billion a day onshore and $40 billion offshore. None of what happens offshore shows up in BOP data (it is USD cash settled). Similarly, exchange-traded currency derivatives in India do not show up in the BOP (they are INR cash settled). Even after one subtracts out these two, the rough numbers in my mind do not square with the rough numbers in the BOP. In short, I think it's an interesting question and worth exploring and fully understanding.Ajay Shahhttps://www.blogger.com/profile/03835842741008200034noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-21934088529100283302011-12-03T10:38:54.597+05:302011-12-03T10:38:54.597+05:30Hi
Great post to help understand about current rup...Hi<br />Great post to help understand about current rupee situation. <br /><br />I am a little confused over this part in the post:<br /><br />"The current account adds up to a mere buying and selling of $4 billion a day. The bulk of currency trading is about the capital account. The currency is a financial object; the exchange rate is defined by financial considerations and not by current account considerations."<br /><br />When I see the RBI data on BOP - http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=25160<br /><br />the current account and capital/ financial account numbers (in terms of exports and imports) are not that different. So how is bulk of the currency trading about the capital account? <br /><br />I am sure I am missing something here, can you please help?Rajatnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-10684923253524995512011-12-02T22:28:06.435+05:302011-12-02T22:28:06.435+05:30Hi,
I am a bit skepticl about using USDINR implie...Hi,<br /><br />I am a bit skepticl about using USDINR implied vols. Given the high correlation between the Index and INR, isnt there a feedback loop.<br /><br />Thanks,<br />chandanAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-24898866060999511472011-12-02T12:36:59.378+05:302011-12-02T12:36:59.378+05:30Very good piece of blog on Rupee. Thanks for the t...Very good piece of blog on Rupee. Thanks for the time you have taken to write this. Those who shout from roof tops that heavens have fallen down due to rupee depreciation should read this compulsorily.<br /><br />M.SankaranM Sankaranhttps://www.blogger.com/profile/12379934095071155555noreply@blogger.com