Central Banks, Stock Exchanges, and Credit Rating Agencies

Central bank of different countries: Central Banks play very important role in the development of economy. Main roles of central banks are making monetary policy for the country, lending the government, setting the key rates for the banking sector and overall, controlling the supply of money in the market.

• Central Bank of India Reserve Bank of India
• Central Bank of America Federal Reserve
• Central Bank of Russia The Central Bank of Russian Federation
• Central Bank of the United Kingdom Bank of England
• Central Bank of Australia Reserve bank of Australia
• Central Bank of Japan Bank of Japan
• Central Bank of Brazil Banco Central do Brasil
• Central Bank of South Africa The South African Reserve Bank
• Central Bank of China The People’s Bank of China

Stock Exchanges of Different countries: A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities. Companies must have to list their share in these exchanges for the purpose of trading.
 Stock Exchanges of India

• National Stock Exchange of India NSE
• Bombay Stock Exchange of India BSE

Different stock Exchanges of the USA

•    The NASDAQ Stock Market
•   Website of New York stock exchange

Stock Exchange of China    Website of Shanghai Stock Exchange
Stock Exchange of Russia    RTS Stock Exchange
Stock Exchange of United Kingdom   London Stock Exchange
Stock Exchange of  Japan          Tokyo Stock Exchange
Different Credit Rating Agencies
A credit rating evaluates the credit worthiness of a debtor, especially a business, company or a government. Credit rating agency evaluates the debtor’s ability to pay back the debt and the likelihood of default.
Different International credit rating agencies are Moody’s, Standard & Poor’s and Fitch

• Website of Moody’s
• Website of S&P
• Website of Fitch

BRICS Nations

What do you mean by BRICS nations?

BRICS i.e. Brazil, Russia, India, China and South Africa; are the emerging nations .These economies are developing very aggressively to become the developed economy.
Emerging nations are those developing nations which are going to become the new destination of the business houses and emerged as the industrial nations.

As in the emerging market; local governments provide a lot of facilities easily to the new companies. These emerging markets make their policies to attract more and more foreign investment.

Benefits to the company from the investment in emerging markets

·         Land is easily available at appropriate place and price.

·         Labor cost of these countries is also very low.

·         Tax rate is low for the investment in industrial areas.

·         As the growth rate of these countries are higher, so purchasing power of the population is increasing day by day.

Benefits to the nation from the foreign investment

·         Development of Infrastructure

·         Transfer of technology

·         Employment generation

·         Increase in the stock of foreign currency

·         Living standard of the population is improved

If we want talk about the GDP growth then, it is found that growth of these emerging nations is better than the GDP growth of the developed one. As the growth of these emerging countries is also affected by the euro zone crisis but effect is less in comparison to developed countries.

These emerging markets are also ready to give better return to their stock and bond investors.

We can take the example of India: Good ‘A’ Grade corporate bond in India is ready to give 9% yield, which is much better than the yields on the bonds which are issued by the developed countries.

So, BRICS nations are advisable for the investment purpose.

Life Insurance

From a legal angle insurance is a contract. The contract is between insurance company and the person getting insurance cover, beneficiaries of insurance would include

• The policyholder
• The insured person
• Dependent of the insured person

Life insurance is usually taken by the earning member(s) of the family to ensure that in case of their death, and hence their source of income ceasing to exist, the dependent family members would have a lump-sum amount to fall back on. So by paying a small amount every year the earning member of the family can ensure that the future of their loved ones is absolutely secure from a financial point of view. So in the event of death of an insured person, the nominee of the policy would receive an amount called the sum assured which can then be used effectively to plan for their future.
Benefits of taking a Life Insurance Plan

•   Provides for Loss of Income
•   Protects your Asset
•   Financial Planning
• Tax Savings

As we know that our life is full of risk and anything can happen at any time. So, we must have to take life insurance cover at the right time. It gives the real protection to family member in the event of the death of the earning person of the family.

Regulatory authorities of insurance sector in different countries are:

• The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories.
• Insurance regulatory authority in India is IRDA
• Regulatory authority of Insurance in Russia is Central Bank of Russian Federation

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Globalization

After the globalization, the whole world has become a small village and the economic growth and slow down of one country affects all over the world. A decision taken by the government of one nation affects the business of all over the world.

According to the data, IMF shaved its 2013 forecast for global economic growth to 3.9% from 4.1% it projected in April. As euro zone crisis affected the whole world’s manufacturing and service sector growth.

Now, euro zone nations are trying to come out from this debt crisis and they are also busy in making the reform policy for their country. So that, they would become able to reduce their debt burden and increase the growth of their country. We can take the example of Spain where government is planning to raise 56.4 b Euro from deducing the spending, increase in the tax rate and adding new power and environment tax. As these steps are very much required for the country to take out itself from the burden of debt. But, when the tax rate will be increased and the government will cut the job then the demand for good and services will be reduced by the people and it will affect the whole world. Such as if the US has export goods and services to Spain then the demand of US goods and services will be automatically decreased.

We can take another example i.e. related to India.

As India has allowed 100% FDI investment in single brand retail but it has put a lot of restriction such as the company which will entered into the market has to mandatory sourcing minimum 30% of their goods from local small and medium sized enterprise. Now many companies want to enter into the Indian retail market but they require some liberalization on this law.

This type of decision affects the growth of both countries, firstly from where the FDI is coming and secondly where these investors want to invest. As every FDI investment increase the employment in both foreign and Home country.

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FDI in single brand retail

India is one of the emerging nations of the world. It is the part of the BRICS and without it, this word has no meaning.

It attracts a lot of investors around the world. As the labor cost of India is very low, many companies have already made it the export hub and others are also planning to invest in this country.

A few years ago India was known for the Agriculture and nearly 80% of its population was depending on it. But now this percentage is decreased and this country is known for the software development, innovations and export hub of different motor car companies.

According to population, India is the second largest country of this world after China. So, It becomes a very attractive market for the retail investors around the world.

India has allowed 100% FDI in the retail but they had applied a lot of conditions on it. These conditions put a lot of hindrance in front of the companies which want to enter into this market. It proves as weakness for the retail sector in India. If the full fledged environment will not be provided to the retail Investors then we can say that we put up hurdles in the development of our own countries.

When we take the example of China where shops are also exist with the big retail outlets.

FDI provides a lot of advantage to the country such as it gives employment, development of infrastructure, knowledge transfer etc.

So, Government should clarify the rules & regulations. It should be easy to get more foreign investment in the economy so that it will help in the development of our country.

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Decrease in the trade deficit in the month of June

The outlook for the global demand for the goods and services are continually decreasing as the major markets such as Europe, the US, China, and Japan are in the grip of uncertainty.

As I discussed in my previous blog that the trade deficit of India was 4.2 % in the fiscal year 2011-12 and Indian government & Reserve bank of India are continually trying to control the trade deficit in the fiscal year 2012-13 means they want to increase the export and decrease the export of the country.

Now the new data of the government shows that India’s export dropped down but the decline in import was even sharper. Which is good news for the economy as the Indian rupee is depreciate nearly 20% in the past one year due to the increased trade deficit and imports.

This depreciation in the value of the rupee harms a lot to the economy. We can understand this from the following example:-

The price of crude oil is decreased at its lowest but Indian did not able to take its advantage.

So, A wider trade deficit is never proven good for any economy.

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Trade deficit, its effects and solution

Government and Reserve bank of India are trying to control the trade deficit as it was 4.2% of the GDP in 2011-12 .And because of the wider deficit; Indian currency has regularly fallen down. Main reason behind the broader trade deficit of the country is the higher import of gold and crude oil.

Demand of Gold is very high in this country because of these two reasons.

1.       Indian loves a lot to this precious Yellow metal and likes to wear its ornaments. They also give a lot of gold ornament to their child during their marriage and also gift it to their relatives.

2.       Gold gives highest return to its investors.

The consumption of crude oil is also higher as government provides a huge subsidy on diesel and LPG which is also used by the industrial houses.
Now, Reserve bank of India is considering the financial products which can mimic the returns on Gold. Government had already increased the tax on the import of Gold to control the fall in rupee. Main reason behind this fall is the increased demand of dollar by the importers.

It is also expected that the price of diesel and LPG will be increased after the presidential election to control the trade deficit and the fall in rupee.

Economy has expected a reform from the governments side because it may happens that Reserve Bank of India will not decrease the key rates as the inflation of country is higher than its growth.

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Banks raises $10 through NRE deposits

Since August 2011 the Rupee has regularly fallen because of the wider trade deficit. This trade deficit is regularly increases due to the high import of crude oil , Gold and other products  and lower exports of the Indian products. For controlling the import of Gold, Government has increased the tax on it but there is no strong policy is made to decrease the consumption of crude oil.
As the demand of dollar is regularly increasing because of higher imports, it started to depreciate the value of rupee. To tackle this problem Reserve Bank of India liberalized the interest rate on NRE deposits. Now, banks are offering 9% or more for one year deposit on NRE or non resident rupee deposit. As the result of this, Banks raises $10b through NRE deposits.

This time whole world is facing the economic uncertainty and so, the local market such as USA and Europe offer negligible returns for NRIs.

AS the value of rupee is regularly falling from 1 Year and The government is thinking about various economic reform policies to improve the status of its currency. Some of the steps are already taken by the government such as the increase in the investment limit in the Government and infrastructure bonds and decrease in the lock in period for it.

So, It is expected that value of rupee will appreciate in near future and it will give a good benefit to the NRE deposit holders.

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Expectations of economic reform

When the Indian Prime Minister Manmohan Singh had taken the additional charge of finance ministry, Indian economy had expected a lot from him. He is a financial reformist for India as He had done the economic reform in 1991 when he was the Finance Minister of India. But now as all the politicians are busy in presidential election so, the reform is expected after this election.

At this time whole world wants to come out with the effects of euro zone crisis. As central bank of china had cut the key rates so that more customers will become able to take loan from the banks. Inflation rate of China is also goes down which will help the government to give the stimulus package to increase the consumption.

But, for the Indian central Bank it is not an easy task to decrease the key rates because the growth for the March quarter is 5.3% where as the inflation rate of the of the country is 7.6%.For controlling the inflation some of the important steps must be taken by the  central  government . These steps may be to reduce the subsidy on diesel, make policy to increase the investment in FDI, control the fall of rupee etc. 

On other hand euro zone is also trying flesh out plans to reinforce the single currency i.e. euro. Central to euro zone leaders’ plan is to give European Central Bank a central role in supervising banks’ which would then allow the permanent rescue fund.

So,A positive ray is seen ,When the whole world is trying to come out from the economic crisis and  they are also busy to take steps to recover from this crisis according to economic condition of their countries.

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FDI Vs FIIs

Foreign direct investment is that investment, which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor's country of origin. The parent enterprise through its foreign direct investment effort seeks to exercise substantial  control over the foreign affiliate company. Example - An American company taking a majority stake in a company in India.

Factors affecting the FDI

·         Financial incentives (Funds from local Government)

·         Fiscal  Policy / Tax incentives (Exemption from import duties)

·         Indirect incentives (Provides land and other resources)

·         Political stability

·         Market potential & accessibility

·         Large economy

·         Market size

Advantage of FDI

·         Economic growth

·         Trade

·         Employment and skill levels

·         Technology diffusion and knowledge transfer

·         Linkages and spillover to domestic firms

·         Improved technology.

·         Management expertise.

·         Access to international markets

Foreign Institutional Investors

An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing with a sole motto of investment and repatriation after the specified period. Institutional investors include

·         hedge funds,

·         insurance companies,

·         pension funds and mutual funds

·         Any other category specified by regulatory authority

Advantage of FIIs

·         Unavailability of Corporate Debt

·         Increase Forex Reserve

·         Increase Domestic Savings and Investments

·         Large Availability of Capital

Disadvantage of FIIs

·         Problem of inflation

·         Reduces flexibility of Policy makers

·         False representation of Economy

·         Can’t be used for long term

·         Problems for small investors 

FDI is better than FIIs if, we want the long term development of country because by foreign direct investment Infrastructure, employment, living standard of the people becomes better and it helps the developing economy to become developed.

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