HOW AND WHY TO INVEST IN GOLD?

Most of the investors dont have the idea about which is the ideal form of investing in gold. Many investors still prefer buying gold coins and bars sold by reputed banks and safe-keep them in their bank lockers. However this method is the least preffered and inefficient option. This is because of the fact that most banks dont buy back gold and the investor must then turn to retailers to strike a deal. However,in the retail market, often jewellers prefer exchanging the coins or bars with ornaments itself rather than pay cash to such customers. So, if you are investing in physical gold, be prepared for some hiccups when it comes to liquidating it. So, in such a scenario its better to go for exchange-traded gold funds. These are mutual fund schemes investing in gold that you can buy and sell in a stock exchange. Since you dont own gold in physical form, you dont have to worry about liquidating it. You can sell the units of the scheme in a stock exchange at prevailing prices. Besides, you can also think of owning the stocks of some gold mining companies. Yes, they carry more risk but they can also give huge rewards.

Now the second question is why to invest in gold? Always remember that almost every financial instrument carries 3 types of risks. They are- Credit risk, Liquidity risk and Market risk. Credit risk is the risk of debtor not paying back. Liqidity risk is the risk that asset cannot be sold as a buyer cant be found. Market risk is the risk that the price will fall due to a change in market conditions.

Gold is unique in that it does not carry a credit risk and very low liquidity and market risk. Gold is no one's liability. There is no risk that a coupon or a redemption payment will not be made,as for a bond,or that a company will go out of business as for an equity. Also, value of gold cannot be affected by the economic policies of the issuing country or undermined by inflation in that country.

At the same time, 24 hour trading, a wide range of buyers and a wide range of investment channels available(including coins and bars, jewellery, futures and options, ETFs, certificates,etc) make liquidity risk very low.

However, gold is of course subject to market risk, as is clear from the experience of 1980s when the gold prices declined sharply. But many of the downside risks associated with gold prices are very different than the risks associated with other assets. For ex- the specific risks to which bonds and equities are exposed, including pressure on the health of the Govt and corporate sector during an economic downturn, are not shared by gold.

The gold price is typically less volatile than other commodity prices. This is because of the depth and liquidity of the gold market, which is supported by the availability of large stocks of gold. Because gold is virtually indestructible, nearly all of the gold which has ever been mined still exists. This means that sudden excess demand for gold can usually be satisfied with ease. Hence gold is slightly less volatile than heavily traded blue chips.

Also, the value of gold in terms of goods and services that it can buy has remained largely stable for many years. In 1900, the gold price was $20.67/oz,which equates to about $503/oz in todays prices. In the two years to end December 2006, the actual price of gold averaged $524. So the real price of gold changed very little over a century.

So,next time you get confused about where to invest, go for gold, afterall GOLD IS GOLD.

The only question that everyone is asking these days is where to invest? The answer to this is not that difficult. One area of investment could be shares,as Indian share market is on a recovery track. But share market has its own risks.The second area could be Gold. But its known that as share market gets bullish,gold prices usually comes down. So this option is also ruled out. Third area could be Fixed deposits in bank(i.e.FDs). Till few years back the rate of interest that banks were offering on FDs was 9%. But this has now declined to around 7%,making FDs less attractive.Besides,the deposit rates are expected to decline further by 50 to 100 basis points.
In this scenario when everywhere the returns are low,there is one area where good returns still exist and that domain is MIS i.e. the post office monthly income scheme. It offers a fixed rate of 8% per annum. The tenure of deposit is 6 years and unlike FDs, interest is paid out every month. Besides MIS offers 5% bonus on maturity.Thus the effective annual yield become 8.9%,which is much higher than the bank deposits. The minimum amount that can be deposited in MIS is Rs 1000 and the maximium amount is Rs 3 lacs(in case of individual account)and Rs 6 lacs(in case of joint account). However,even this return of 8.9% can be further increased with proper planning. The monthly MIS proceeds could be invested directly in post office’s Recurring Deposit,which effectively extends the annual return to 10.5%.
For example if Mr.X invests Rs 90000 in MIS today,he will get Rs 600 every month for 72 months. So,he is entitled to Rs 43200 in the form of monthly interest till maturity and Rs 4500 as bonus at the time of maturity. So his total return would be Rs 47700 in 6 years. But if Mr x do not require the monthly interest ,he can opt for automatic transfer of MIS interest to recurring deposit. A sum of Rs 600 is deposited in his RD account every month,offering 7.5% per annum compounded quarterly. So,at the end of 6 years Mr x will get almost Rs 51400 from his RD account. The recievabales from from RD and the bonus on MIS amounts to Rs 56000 in 6 years. On the other hand if Mr x had invested in a bank FD,he wouldnt have earned more than Rs 45000(average).

DIFFERENCE BETWEEN FUTURES AND OPTIONS

Both terms are very easy to understand. Lets understand them with the help of examples. First lets talk about futures. Suppose A wants to buy a house from B. The present cost of house is $10,000. now lets assume that today B is not intrested in selling house but he is ready to sell it after an year(say in march 2010). So A makes a contract with B that he will buy house from B after an year i.e on march 20,2010 at a particular price,fixed today. So,even if the price of house goes up from $10,000 to $15,000 by march 2010,A will pay only promised price (say $10,000). Now,the question is,if B knows that the price of house is gonna increase by march 2010,why he is selling house to A at a low price?And on what basis price will be fixed?The answer to this lies in the fact that market is volatile,if prices can go up,there is every probability of these coming down too(see what happened in U.S). Now,how price is fixed?B knows that if he gets $10,000 today from A,he can put it in a bank and can earn interest on that(say 10% interest).So,this way he can earn $11,000 in toto. So,the price that he will fix with A would be $11.000 and not $10,000.In this way he can do away with the losses. This will be beneficial for A also because if the price of house increase in one year to $15,000,then its better to pay $11.000 instead.

Now,if we talk about options,we should realise that there is very thin line that separates futures from options. In options,there is no compulsion on A to go on with the deal and execute it in march 2010. But in future,A has to abide by the deal and execute it in march 2010,i.e he cannot back off. So,suppose A visited the house that he is gonna buy,on january 25 2010 and found that it is haunted.No way he can risk his life and so he decides not to buy it. In this way he can back off from the deal that is due on march 20,2010. But in such a case A has to suffer a loss in the form of the premium that he initially paid to B. Reckon that A paid $1000 to B while making the deal,he wont get this amount back while breaking the deal. In this case both parties can save themselves from suffering losses because anyways the house is haunted and not gonna bring benefits for anyone( A lost $1000 but he saved himself from further losses because it would have been impossible for him to resale that house. Same way,B got atleast $1000 instead of nothing).

FDI Policy of India,Part-1

The process of globalisation of FDI in India is still incomplete. There are hundereds of reasons why we are still behind China as far as attracting foreign investors is concerned. As of 2008,FDI is prohibited in sectors like gambling and betting,lottery business,atomic energy and Agriculture. Besides,the master circular issued by RBI in july 2008 specified additional activities for which FDI is not allowed.These are business of chit fund,a Nidhi company,plantation activities,real estate business and trading in TDRs(Transferable Development Rights).

Ideally FDI should be regulated by a single agency of the government,but in India it is administered by several agencies,some of whose functions overlap with each other. Matters relating to policy are anniunced by Department of Industrial Policy and Promotion(DIPP) [whose executive arm is Secretariat for Industrial Assistance(SIA)] andForeign Investment and Promotion Board(FIPB). On the other hand statutory regulation is effected by Foreign Exchange Management Act 1999(FEMA). But,very often,the non statutory policy measures that are announced by the SIA in the form of the so called "Press Notes"are inconsistent with some of the regulations issued under FEMA. However,policy measures announced by these press notes are non justiciable whereas the decisions of RBImade under FEMA can be subjected to judicial review.

In 1998,Gvt permitted foreign investors to set up wholly owned subsidiaries and joint ventures in India in fields where there was no prescribed sectoral cap on foreign equity. This caused resentment among industrialists in India as they were forced to carry on their businessside by side with foreign investors. The main problem was that a foreign investor could set up another business in Indiain the same field and thus compete with the business of his former joint venture. In order to allay the suspicions of Indians SIA issued a press note no.18 of 1998 through which govt imposed a blanket ban on all new investments by foreign investors who had previous joint ventures or technology transfer or trade mark agreements in Indian companies in the same or allied field,unless the foreifn investor had obtained the approval of FIPB. In prectice it meant that foreign investor(FI) had to obtain an NOC from his joint venture partner before he could even apply to the FIPB for the approval of secondary investment. As can be imagined the Indian joint venture partner started using this opportunity to extract huge amounts of compensation from the foreign investor before granting an NOC.

In order to soften the harshness of press note 18,SIA issued press note no 1 of 2005 which said that prior approval of govt would be required only in cases where the FI has an existing joint venture or TT or TM agreement in the same field. Even if an FI has an agreement in the same field,prior approval of govt is not required if existing joint venture agreement by either of the parties is less than 3%. But this so called softening of the obstruction turned out to create more problems than it was intended to solve. In order to reduce the share of the former Indian joint venture partner in the previous company to 3% or below,the FI would first have to buy off the shares held by the Indian partner in that company. This would give the Indian partner the opportunity to extract a huge amountas a price for such sale. Nor could the FI sell shares representing his investment in that company to a third party because any such sale would require the consent of Board of Directors of the company. Such consent would be difficult to obtain without the full cooperation of the former Indian joint venture partner.

Another regulation that has inhibited the flow of FDI is press note no 9 of 1999. It purports to restrictthe right of foreign owned Indian companies to make downstream investments without prior govt approval. There is no difinition in it of what a "foreign owned Indian company"means. The FIPB considers that even a joint venture company is a foreign owned Indian Company(FOIC). But this is legally invalid. In the first place,a so called FOIC is subject to the same legal regime as any other Indian company. This press note also violates a declaration in manual on FDI,policy and procedures 2008 which says that "once a company has been duly registered and incorporated as an Indian company,it is subject to Indian laws and regulations as applicable to other domestic Indian companies. So an FI cannot be subjected to any restrictions on downstream investments (no such restrictions are prescribed by FEMA). Also it is intresting to note that press note no9 of 1999 was issued when FERA and not FEMA was in force.It is obvious that press note no 9 of 1999 could not survive the repeal of FERA because nothing in FEMA permits the govt or RBI to regulate downstream investments.

Thus there are many road blocks to FDI. There are others also like the regulations made under FEMA. All these road blocks will no doubt continue to spoil FDI game in India.

ITS PIRATES OF SOMALIA NOT CARIBBEAN

Piracy in Somalia is a highly organized,lucrative and ransom driven business. On many ocassions pirates were paid millions of dollars. These juicy payoffs have attracted gunmen from across somalia and the number of pirates are in thousands now. However, Indian navy recently registered a victory in one of the anti-pirate operation in the Gulf of Aden.But is this the solution of the problem? The United States and several european countries,particularly France have been talking about ways to patrol the waters together. The United Nations is even considering something like a maritime peacekeeping force.

This is nothing but piracy by henchmen of Somalia warlords(trying to capture power in Somalia)who are locked in fierce battle on the mainland and who are increasingly using the funds from piracy for their land operations. One of their biggest success was hijacking of Saudi Arabian supertanker "Sirius Star",with its $100 million worth of crude oil.

The question is how all this started?No one expected war hit Somalia to be the centre of such activities. The piracy industry started about 10 to 15 years ago as a response to illegal fishing. Somalia's central government imploded in 1991,casting the country into chaos. With no patrols along the shoreline,Somalia's Tuna rich waters were soon plundered by commercial fishing fleets from around the world. Somali fishermen then armed themselves and turned into vigilantes by confronting illegal fishing boats and demanding that they pay a tax. By the early 2000s,many of the fishermen had traded in their nets for machine guns and were hijacking any vessel they could catch. This is how piracy originated in Somalia.

Now,point is that where exactly this money of plunder going? One route ofcourse goes towords warlords on the mainland. Another route is KHAT. This money is also been used in trafficking Khat,a mild narcotic leaf that is very popular in the region. Banned in many western countries,khat is a flowering plant that is native to East Africa and the Arabian peninsula.

The immediate problem is that more than 20,000 vessels pass through the Gulf of Aden each year and this has resulted in insurance premiums shooting upto as much as $20,000 for a shipment of cargo.

NATO and U.S says that they cant be everywhere(Obviously,as there is no oil there).They are urging for private security. Mere statements wont do. If this problem is to be solved then a collective effort is required,not just India and France but everyone needs to contribute.

OPEC AND OIL PRICES

OPEC brings together most of the world's oil exporting countries to coordinate their petroleum policies and provide them with technical and economoical aid. OPEC was established in september 1960 at Baghdad,Iraq and was formally constituted by Iran,Kuwait,Saudi Arabia and Venezuela in 1961. OPEC was susequently joined by Qatar(1961),Indonesia and Libya(1962),Abu Dhabi(1967;membership was transferred to UAE in 1974),Algeria(1969),Nigeria(1971),Ecuador(1973) and Gabon(1975). The headquarters initially at Geneva was shifted to Vienna in 1965.

Today OPEC accounts for 40% of world's oil producton(In 1973 it was 55% and in 1980 it was 45%; the decline is due to increased role of Russia and Kazakistan). The supreme authority of the organisation is the conference consisting of reprentatives (generally oil ministers) of all the member states,each with one vote. It meets twice a year to formulate policies. All decisions (except those concerned with procedural matters)are adopted unanimously. The resolutions of the conference become effective 30 days after the conclusion of the meeting at which they are adopted,unless one or more members submit their opposition to the resolution.

However,an absence of effective coordination with non-OPEC oil producing countries has lead to much tensions in the world oil market. Four members-Kuwait,Qatar,Saudi Arabia and UAE-have large oil reserves in relation to thier population. The largest producer is Saudi Arabia, second largest being Iran.

OPEC decisions have been of great significance in the world oil market. OPEC gave FIRST OIL SHOCK to the world in October 1973(using oil prices as a political weapon against western nations for supporting Israel in the war of 1973).The organisation again raised prices to 130% in December 1973 and an embargo was placed on oil shipments to the US and Netherlands at the same time.

However,today condition is very different. Oil prices are going down like anything. It has reached below $34 a barrel (as in the third week of December 2008). The main reason of this is price cycle. First demand in western countries was huge(mainly in US which stands at no.1 position when it comes to oil consumption).However,OPEC kept on increasing oil prices. Then suddenly recession came into action and hence demand decreases,especially in western countries(this decrease in demand was due to the fact that people now want to spend less). As a result of decrease in demand, oil prices started coming down.

Recently,OPEC met in Oran, Algeria on December 17, 2008, and decided to cut 4.2 million barrels per day (mmbd) from their actual September production level of 29.045 for the OPEC subject to production quotas, effective January 1. This amounts to an additional cut of approximately 2.4 mmbd from the October production quota level of 27.308, and a cut of 2.9 mmbd from estimated November production, if the cuts are fully implemented.

While this is a somewhat confusing way to present their decision, the Algerian announcement would imply a new OPEC production goal of 24.845 mmbd from January 1. When combined with the October agreement, this latest cut represents a cumulative 4.0 mmbd decline from the September quota agreement, and a 4.2 mmbd cut (or 14.4%) in actual OPEC production from September levels. Non-OPEC producers Azerbaijan and Russia, who attended the meeting as observers with great fanfare, declined the opportunity to join OPEC and did not make a formal pledge to cut production and exports. Mexico and Norway declined to participate, saying that their production was already declining as a result of depletion.

OPEC is trying its best to increase world oil prices. However experts believe that oil prices are unlikely to go above $70 a barrel in 2009. Experts also believe that US President-elect Barack Obama’s stated policy of supporting development of alternate energy sources will also impact oil prices. At current crude oil prices developing alternate energy sources is no viable. But if the new US government subsidises alternate energy, and gives concessions, then companies will think about it.

Its difficult to predict anything with 100% accuracy. However world believes that countries like China and India have the potential to play some role in this context as demand for oil in these countries is constantly increasing. So this time not just OPEC, but India,China,Russia,kazakistan and many others have a major role to play. Lets hope whatever happen would be good for everyone.

GAME THEORY

Game theory is a technique for analysing how people,firms,and governments should behave in strategic situations and in deciding what to do,must take into account what others are likely to do and how others might respond to what they do. For ex-competition between two firms can be analysed as a game in which firms play to achieve a long term competitive advantage. The theory helps each firm to develop its optimal strategy for,say pricing its products and deciding how much to produce.It can help the firm to anticipate in advance what its competitor will do and show how best to respond if the competitor does something unexpected.It is particularly useful for understanding behaviour in monopolistic competition.

In game theory,which can be used to describe anything from wage negotiations to arm races,a dominant srategy is one that will deliver the best results for the player,regardless of what anybody else does. One finding of game theory is that there may be a large "first mover advantage" for companies that beat their rivals into a new market or come up with an innovation. One special case identified by the theory is the "zero sum game"where players see that the total winnings are fixed;for some to do well,others must lose. Far better is the "positive sum game" in which competitive interaction has the potential to make all the players richer.

CLEARENCE TO FOREIGN NEWS MAGAZINES

Foreign news magazines can now come out with Indian editions with union cabinet clearing an information and broadcasting ministry proposal to review the print media policy to this effect. Till now,only indian editions of foreign scientific,technical and speciality periodicals & journals were allowed. However,unlike in the case of niche publications like scientific,technical and speciality periodicals-where cent percent foreign investment is allowed,publishers of Indian editions of foreign news magazines will be eligible only for 26% foreign investment. Only Indian companies registered under the "Indian companies Act,1956"will be allowed to bring out Indian editions of foreign news magazines.

WORLD ECONOMIC CRISIS

The world is facing a situation close to that of 1929,if not exactly the same. Paulson proposed bailout package of $700 billion mainly to purchase toxic assets off the books of the financial firms. However the total consumer debt in U.S. is now about $2.6 trillion(22% more than in 2000),while the mortgage debt is around $10.5 trillion. The problem is that this debt will not be written off by bailout plan. The estimated credit default swap market alone is about $62 trillion. This poses a considerable danger.This is particularly the case as the major banks and investment houses now consolidate into 4 companies (J.P morgan chase,citicorp,Bank of America and Wachovia wells fargo). The toxic fictitious sector and the equally unstable consumer debt bubble are within the balance sheets of these 4 entities.The bailout does not address this toxicity,which will inevitably corrode the remaining banks.

This all started with sub-prime crisis,housing bubble and finally its effects on banks. On october 15 the federal reserve released the BEIGE BOOK which showed that in september consumer spending had declined in retailing,auto sales and tourism. This is the first formal indication of the impact of the crisis.Things are so bad that GENERAL MOTORS released a statement that"bankruptcy is not an option"for the company.

One of the main reason of all this is the complex structure of the U.S. economy,which gives extremly high profits to the financial sector. The number of bank failures in U.S. increased after 1980s;the savings and loans crisis was precipitated by financial behavior induced by liberalisation;and the collapse of long term capital management pointed to the dangers of leveraged speculation. Afterwards came the effects of housing bubble. Because of the complex chain,institutions at every level assumed that they were not carrying risk or they were insured against it. But risk did not go anywhere and resides somewhere in the system. Given financial integration,each firm was exposed to many markets and most firms were exposed to each other as lenders,investors or borrowers. Any failure would have a domino effect that would damage different firms to different extents and unfortunately the same happened.

FAILED BAIL-OUT PLAN

The house of representatives has deafeated a $700 billion emergency rescue package for staggering U.S.financial industry.The vote against the rescue was 228 to 205,with 133 Republicans turning against president Bush to join 95 Democrats in opposition.The bill was backed by 140 Democrats and 65 Republicans.The vote was a poloitical defeat for president Bush who tried to muster national support for a recovery plan in a televised address recently,then lobbied wavering Republican legislators in intensely personal telephone calls before voting.Bush and his economic advisors,as well as congressional leaders in both parties had argued that plan was vital to insulate ordinary Americans from the effects of wall streets' bad bets.The version that was up for vote was the product of marathon closed door negotiations on capitol hill.It is alarming,how quickly tables can turn.Leading U.S.commercial bank WACHOVIA CORP.which was looking to acquire MORGAN STANLEY till a few days back,has now ended up being swallowed by CITIGROUP.

ANOTHER FEATHER IN THE CAP OF RELIANCE

Reliance industries has begun crude oil production from the nation's first deep sea oil field in the krishna Godavari basin. Reliance is the first to produce crude oil in the private sector. It is also worth mentioning that Reliance is the only player in the private sector that owns oil refinery(at jamnagar),rest all are owned by government of India.

Difference between WTO and GATT

WTO had its origin in Bretton woods conference after the end of second world war. It was founded in 1948 with 23 members by the name of GATT[General Agreement on Tariffs and Trade]. But in 1995,GATT was rechristined as WTO.
DIFFERENCES
1.GATT was a provisional legal agreement whereas WTO is an organization with permanent agreements.
2.WTO has members while GATT had only contracting parties.
3.GATT dealt only with trade in goods while WTO covers services and intellectual property rights as well.
4.The real critical distinction between GATT and WTO is creation of a binding dispute settlement system.Under GATT contracting parties could bring cases before international body but there was no effective enforcement mechanism. But in WTO an effective enforcement mechanism exists.

CURRENT INDUSTRIAL POLICY OF INDIA

Industrial policy of any country is in the form of certain rules and regulations issued by the government of that country for all the industries. These guidelines need to be followed by all the industries of that country.
When India got independence in 1947, the policy makers were well aware of the fact that Indian private sector is in its infancy. So, they decided not to rely upon private sector for industrial development. Hence almost all the industries were kept under government control under the “Industrial policy of 1948”.
By the “Industrial policy of 1956” government divided industries into three categories, schedule A, B and C. Schedule A industries were exclusively under the control of state. It included 17 industries. Schedule B industries were setup by state but private sector could supplement the efforts of the state. Schedule C industries were left for Private sector but were under the strict control of the state.
Slowly and gradually government went on a nationalization spree with nationalization of general insurance, life insurance and finally nationalization of banks (14 banks in 1969). But at the same time government also slowly started releasing its grip over private sector by Industrial policy statement of 1973 and 1977.
However due to stringent licensing system, not everyone could get a license for setting up an industry and as a result of this, money started accumulating in fewer hands(a direct violation of directive principles of state policy of the constitution). This was also indicated by “Hazari committee”, “Mehelinobis committee” and “Dasgupta committee”. Finally government decided to intervene in the mergers and acquisitions. Government could ask any big business house to break, if it feel that the business house has grown to such an extent that it is depriving others from making profit or the benefit of economy are not reaching to the ground level. At the same time government had the right to “say no” to a merger between two big business houses or industrial units, if it had a negative impact on others. So, practically speaking government got the rights of “marriage and divorce” of industries. However, even this step could not bring any benefit to industrial sector and Indian industries became uncompetitive internationally. So, finally government brought about a sea change in its industrial policy and came up with Industrial policy of july1991. Under this all industrial licensing were abolished except for 18 industries (like coal, alcohol, petroleum, hazardous chemicals etc...). So, about 85% of industries were taken out of licensing framework. Also, number of industries reserved for public sector was reduced from 17(in 1956) to 8(1991), (Now only 3). MRTP was also scrapped off as it was making Indian industries uncompetitive.
But as MRTP was scrapped off, so government had to come up with an alternative. Hence in 2002 government came up with “Competition Act 2002” under which government got the right of “Marriage and Divorce” of industries from the point of view of “Abuse of Dominance”. So before 1991 government had the right to stop the growth of any industrial house if it was dominant and depriving others from profit (even if it got dominant by fair means), but now government usually take action only if an industrial house has achieved dominance by unfair means (however it is alleged that this is more or less restricted to papers. The recent controversy of Anil Ambani-congress had supported this view in which reliance was alleged to take favor of government for gaining access to 3G spectrum).
However it is clear that after 1991, Indian industrial sector has achieved tremendous progress, which is clear from social and economic progress of India. But one should not compare India with developed nations like U.S, Britain, etc. United States got independence in 1776 and took more than 150 years to become superpower. James-I signed MAGNA CARTA in 1215, but Britain got the status of developed nation only in 20th century, after the industrial revolution (and everyone knows how they did it? By ruthless killings and plundering others). China got settled in 1949, but we cannot attain status of rich economy on the dead bodies of innocents as china did by communism, which is nothing but radical form of socialism.
India is a true democracy, so we may take a little longer to get status of developed country but we will surely achieve it and current Industrial policy of India is just a step forward towards achieving this goal.

RBI's NEW INITIATIVE

RBI has decided to increase the cap on advance remittances towords the import of services. Banks will now allow firms to make advance remittances upto $500,000 without a bank guarantee,against the previous limit of $100,000.

ENTRY OF TESCO

TESCO,U.K's supermarket group has announced plans to develop a wholesale cash and carry business in India,commiting an initial investment of upto 60 million pounds in the first 2 years. TESCO has also signed an exclusive franchise agreement with TRENT,the retail arm of TATA group.

I.O.C. and the Bond market

After a gap of 6 years IOC has tapped the bond market to raise term money at a fixed rate of 11% for 10 years and 11.15% for 3 years. The issue size is Rs 300 crores but company can accept higher subscription under GREENSHOE option. IOC is the largest refining and marketing company that controls 10 out of India's 19 operational refineries. IOC suffers a loss of Rs 240 crores everyday on sale of its products at a subsidized rate.However,this is recompensed by Government through issue of OIL BONDS.

FREE TRADE AGREEMENT BETWEEN INDIA AND ASEAN

India and ASEAN have agreed to sign a free trade agreement in December 2008.The FTA between India and ASEAN is expected to boost bilateral trade to $50 billion by 2010 from the present level of $35 billion. It took six long years for two sides to conclude the negotiations as the talks tripped several times over issues like RULES OF ORIGIN(R.O.O)and market opening by India for 5 sensitive agricultural products including tea,coffee,palm oil and pepper.
While R.O.O issue was sorted out some time back,the talks kept getting stuck on the levels of tarrif reduction on 5 products especially crude palm oil and refined palm oil.
An agreement on palm oil duties was finally reached in early August 2008 after India decide to improve its offer in CPO to 37.5% and RPO to 45% over its offer of 43% and 51% respectively,made in january this year.
India has also agreed to lower duties on coffee and tea to 45% and pepper to 50%.
Under the pact,India and ASEAN will eliminate import duties on 71% products by December 31,2012 and another 9% by 2015.Duties on 8-10% products that have been kept in the sensitive list will also be brought down to 5%. India will keep 489 items in the negative list of products to be excluded from tarrif reduction commitments.

NSE Trading In Currency Futures

NATIONAL STOCK EXCHANGE has announced the launch of trading in currency futures from 29th august 2008. For the first time in India, it would now be possible to trade on the currency futures on a stock exchange platform.
Currency futures are standardised foreign exchange contracts traded on a recognised stock exchange to buy or sell one currency against another on a specified future date,at a price specified on the purchase or sell date. Currently RBI has approved only USD-INR currency futures to be traded on the approved exchanges.
The size of the contract would be $1000 and they would expire on the last business day of any month at 12 noon. The contracts will be quoted and settled in rupees and the settlement price of the contract would be RBIs reference rate on the last trading day.