Eurozone and Sovereign Debt Crisis-VRK100-05Oct2011

Eurozone and Sovereign Debt Crisis

What is Eurozone?:

Those European Union (EU) member states that have adopted the euro as their single currency are part of the euro area. A single monetary policy for the euro area is conducted by the European Central Bank (ECB) under the responsibility of the Governing Council of the ECB. Euro area is informally known as eurozone. The euro was launched on 01 January 1999 on foreign exchange markets, and euro currencies replaced national currencies on 01 January 2002.

There are now 17 European countries in the eurozone, with a common currency, the euro, and a single interest rate set by the ECB. Estonia is the seventeenth country to adopt euro as its currency with effect from 01 January 2011.

The full list of eurozone countries is as follows: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.

The European Union (EU) was established on 01 November 1993 after the ratification of the Maastricht Treaty by the member states. It was previously known as the European Economic Community (EEC). It is a political and economic union of the member states, mainly consisting of European nations. It aims to provide a single market for the member states. Its important institutions include the European Commission, the European Parliament, the European Court of Justice and the European Central Bank.

The EU is an amalgam of 27 Member States. It consists of:

Ø      17 eurozone nations (given above); and

Ø      10 other nations – Bulgaria, the Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania, Sweden and the United Kingdom – which have not adopted euro and continue to use their own national currencies.

Sovereign Debt Crisis in eurozone:

 Ø      The Governments in the eurozone, like, Greece, Italy and Spain, are facing the problems of sovereign debt crisis caused by huge government debt 

Ø      These governments are unable to meet their debt obligations

Ø      Some analysts are afraid that some countries (Greece, Portugal or Spain) may default on their debt obligations

Ø      Several European banks require massive capital funds

Ø      Growth in the eurozone is very low fuelling fears of recession

Ø      Unemployment is generally very high in the eurozone

Ø      There are fears of a break-up of eurozone

Ø      Some countries in the eurozone are living beyond their means for a decade or so

Land Acquisition Bill-VRK100-05Oct2011

Highlights of Land Acquisition Bill

Government of India has come out with a draft Land Acquisition Bill which aims to provide better market values to land owners and to safeguard the livelihoods of the project-affected people. The salient features of the Bill are:

Ø      Government will not acquire land for private companies

Ø      In urban areas, land owners will get a minimum compensation of twice the market value

Ø      In rural areas, land owners will get a minimum compensation of four times the market value

Ø      A comprehensive rehabilitation package for land owners and the landless people affected by the project

Ø      The Bill will enjoy primacy over specialized legislations

Indian Economy-Strengths and Weaknesses-VRK100-05Oct2011

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Please see update dated 01 September 2013:

http://ramakrishnavadlamudi.blogspot.in/2013/09/indian-economys-strengths-and.html

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Indian Economy-Strengths and Weaknesses

The Strengths are:

ü      Indian economy is driven by domestic consumption of late and is less dependent on exports as compared to other Asian nations

ü      Savings rate is very high at around 35 per cent (of course, the high savings rate is mainly due to the fact that common people have no social security)

ü      India’s population is very young providing good demographic benefits in the form of higher productivity and higher consumption of goods and services

ü      The level of entrepreneurship has gone up substantially after liberalization

ü      Indian banking system is very strong providing financial stability despite concerns about quality of assets of late

ü      India has vast natural resources

ü      India’s skills in export sectors – like, software services, engineering goods, gems & jewellery and garments – are well recognized across the world

ü      India has become a world manufacturing hub for automobiles

ü      Indian companies, in general, are in good health carrying huge cash balances and lower debt levels on their balance sheets

ü      If implemented properly, Goods and Services Tax will boost tax revenues

The weaknesses are:

Ø      Inflation remains persistent at around 8 to 10 per cent for about four years

Ø      Large price rise in food articles is affecting the poor people very adversely

Ø      Corruption is entrenched in the entire social fabric

Ø      India’s national income growth has slowed down due to rising interest rates, decline in investment cycle and gloomy global outlook

Ø      Fiscal deficit is getting out of control as the government is unable to control expenditure and resorting to higher market borrowings

Ø      Current account deficit is manageable now, but it may go out of hand in future if not handled properly

Ø      New project clearances are delayed due to environmental concerns and problems related with land acquisition leading to social unrest stemming from improper resettlement and rehabilitation

Ø      Despite huge population, there is massive skills deficit across industries

Ø      There is a perception that the government is unable to push economic reforms due to a spate of corruption scandals that surfaced recently

Ø      The micro challenges for India are healthcare, malnutrition, hunger, poverty and illiteracy

Ø      Hard infrastructure (roads, ports, power, broadband, etc) is very weak and energy security is poor

Ø      Low agricultural productivity – we need a second green revolution

Indian Stock Markets Are Down-VRK100-05Oct2011

Reasons for the recent weakness in Indian stock markets:

Ø      India’s GDP growth rate is slowing down

Ø      The sovereign debt crisis in eurozone and the US are making investors nervous about India’s exports and GDP growth

Ø      The recent rupee depreciation against US dollar is also stoking fears that some Indian companies may record losses due to foreign exchange losses in their profit and loss accounts

Ø      Foreign Institutional Investors (FIIs) are net sellers this year

Ø      Bank deposits are giving assured annual returns of 9 per cent to 11 per cent. As such, investors find deposits more attractive compared to stocks.

Ø      Several stocks in the real estate, construction and infrastructure are hit by scandals and bribery charges

Ø      Banking stocks too are losing heavily due to rising interest rates and concerns about quality of assets and compounded by Moody’s downgrade of State Bank of India’s credit rating

Ø      Market participants believe that policymakers are not doing enough to push for economic reforms

Ø      Investment cycle is down and project clearances are affected due to environmental factors and land acquisition problems

The US Dollar Gains-VRK100-05Oct2011

The US Dollar Gains - Why?

Credit rating agency, Standard & Poor’s, downgraded US credit rating in the first week of August 2011. Following the downgrade, it was expected that the dollar would weaken against other currencies. Against this background, it is difficult to provide a logical explanation to dollar’s relative strength after the S&P downgrade.

However, let me try to make some sense out of this counter-intuitive behaviour of investors. The US dollar is still regarded as a global reserve currency and its usage is very widespread across the globe for trade and other purposes. Immediately after the S&P downgrade of the US, global investors started moving their money to gold, other commodities, Swiss franc and Japanese yen.

During the first week of September 2011, Swiss National Bank (SNB) announced it had pegged its currency Swiss franc (CHF) to euro (EUR) shocking the currency markets. Concerned that the massive overvaluation its franc would hurt Swiss exporters and may jeopardize their economy, the SNB said that it would not tolerate a EUR-CHF exchange rate below the minimum rate of CHF 1.20.

At around this time, sovereign debt crisis in the eurozone has deepened. Global financial markets have started worrying about the prospect of Greece defaulting on its sovereign debt and a possible break-up of eurozone.

So, investors have no choice but to rush to the safety of US dollars. They started moving away from euro and Swiss franc to dollar. Even Japanese government too intervened to stop the yen appreciating against the dollar. Japan is highly dependent on exports and yen appreciation affects them adversely.

During the first half of this calendar year, the US dollar had weakened against major currencies. The US dollar index (the indexed value of the US dollar against six major currencies, like, euro, pound sterling, Japanese yen and so on) went down to a level of 72.5 in July 2011. But, after two months, the dollar gained substantially and the US dollar index is now hovering around 79.5 showing the dollar has appreciated by nearly 10 per cent in the last two months.

Currencies in the emerging markets too have lost by about five to 15 per cent against the US dollar in the last one month. The Indian rupee has lost around 10 per cent against the dollar in the last two months.

Indian Rupee falls against US dollar-VRK100-05Oct2011

Reasons for Indian Rupee's recent fall against US dollar:

Ø      The dollar-rupee exchange rate depends on the supply and demand

Ø      There is shortage of US dollars after the dollar has strengthened against other major currencies, like, euro and pound sterling in the past one or two months. The dollar shortage has spread to India also.

Ø      Foreign Institutional Investors (FIIs) have been selling in the Indian stock markets pushing up the demand for dollars

Ø      Sudden rupee depreciation has forced corporates to go for covering their imports and this has pushed up the demand for dollars to some extent. Typically, exporters try to postpone bringing their dollars to India thinking that dollar will appreciate further against the rupee causing temporary shortage of dollars in the market.

Ø      However, theoretically speaking, rupee should be gaining strength against dollar as Indian economy is expected to do much better compared to the US. Even interest rates are much higher in India than those in the US. The short-term aberration will continue for some time. And the rupee is expected to appreciate against the dollar in the medium to long term.

Gold Price Declines-VRK100-05Oct2011

Gold Price Declines

Due to concerns about paper currencies across the world, investors are flocking to assets, like, gold, silver and other commodities. The US dollar’s weakness has helped the commodities’ prices to rise faster. However, in the last few months, the US dollar is gaining strength against other major currencies, like, euro, pound sterling and others.

With dollar strengthening, global investors have started moving money to dollar assets and started selling other currencies, gold other commodities. After touching a peak of $ 1,930 per ounce, the world gold price has come down by 15 per cent to the current $ 1,640 per ounce. Accordingly, gold prices in India too should have come down from a peak of Rs 28,000 to Rs 24,000 per 10 gm. But the rupee value against dollar has weakened by 10 per cent in the past two months limiting the gold price decline to around Rs 26,000 per 10 gm in India.

Gold price in India is driven mainly by two factors – one is international gold price expressed in US dollars and the dollar-rupee exchange rate.

Gold price had gone up very fast in the last one year. As such, some investors may be booking profits on their investments by selling gold.

101 Questions for Bank Interview-2011 Edition-VRK100-03Oct2011

101 Questions for Bank Interview

2011 Edition

Rama Krishna Vadlamudi, HYDERABAD      03 October 2011
www.ramakrishnavadlamudi.blogspot.com

Dear Friend,                                                

The 2010 Edition of ‘101 Questions & Answers for Bank Promotion’ proved very popular and received good response from various quarters. Many questions that appeared in the previous edition are still relevant and I think most of them will be useful this year also. If you want to read the 2010 Edition, you can just click:

http://ramakrishnavadlamudi.blogspot.com/2010/11/answers-jumpled-to-101-interview.html

Now, the time has come for the 2011 Edition of ‘101 Questions.’ The questions are ready but not the answers. Now, I’m trying to find answers for the questions. The answers will be uploaded on www.ramakrishnavadlamudi.blogspot.com in the next few days, but not later than 08 October 2011.

I wholeheartedly wish you all the best in your interview.

With regards,

Rama Krishna Vadlamudi


Just Click the following link to download the 2011 Edition in PDF format:

http://www.scribd.com/doc/67325993/101-Questions-for-Bank-Interview-2011-Edition-VRK100-03Oct2011

101 Questions – 2011 Edition

1. What is the interest rate on banks’ savings bank deposit account?

2. Gold price has gone up several times recently. But why is it coming down now?

3. What are the reasons behind Indian rupee’s recent fall against US dollar?

4. Why is the US dollar gaining strength against other major currencies of late?

5. How may credit information companies are allowed to operate in India by RBI?

6. What is India’s GDP for 2010-11?

7. What are the present rates of CRR, SLR, Repo, Reverse Repo and others?

8. RBI had recently fined several banks for violation of foreign exchange derivatives norms. Which are the major banks?

9. What is India’s current account deficit?

10. What are the reasons for weakness in Indian stock markets since November 2010?

11. What are the strengths and weakness of Indian Economy as of now?

12. What are CDS?

13. What is the capital adequacy ratio of our Bank?

14. What is SBI’s BPLR?

15. What is our Bank’s quarterly profit in June 2011 quarter and why our net profit has come down?

16. What is SBI’s Base Rate?

17. What is the Land Acquisition Bill and what are the important provisions?

18. What is our Bank’s net NPA percentage as at the end of June 2011?

19. What are the reasons for the economic and financial crises in the US and eurozone?

20. What is eurozone?

21. How is RBI controlling inflation in India?

22. Why are interest rates going up in India in the last two years or so?

23. What are India’s foreign exchange (forex) reserves?

24. What are the concerns being faced by banking industry in India?

25. What is an infrastructure debt fund (IDF)?

26. Which bank has been awarded the Best Bank award by ‘Business India’ magazine for 2011?

27. What are the provisions of the proposed National Food Security Bill?

28. What are currency options?

29. What are interest rate futures (IRFs)?

30. Whether nomination facility can be extended to deposits held by a bank in the name of a sole proprietary concern?

31. What is Marginal Standing Facility (MSF)?

32. What is the single operating monetary policy rate of the RBI?

33. Why is the Government of India borrowing an extra Rs 53,000 crore from the market during the second half of 2011-12?

34. The Standard & Poor’s has downgraded the credit rating of the US from AAA to AA+. Why?

35. What is a credit rating agency?

36. Why has the demand for unit-linked insurance policies (ULIPs) come down of late?

37. Are insurance companies permitted to sell policies online?

38. Who is India’s Comptroller and Auditor General?

39. Who is India’s Finance Secretary?

40. How much can be invested by a resident Indian abroad?

41. Can banks charge pre-payment penalty charges for housing loans?

42. What is the share of agriculture in India’s GDP?

43. Since the beginning of this upward interest rate cycle that started in March 2010, how many times RBI has increased its Repo rate under LAF?

44. What are the salient features of the RBI’s draft guidelines issued on 29 August 2011 for issue of new bank licenses in India?

45. How much can banks invest in liquid schemes of mutual funds?

46. Swiss National Bank has recently pegged its currency the Swiss Franc to a major currency. Which is the currency?

47. Who is the managing director of International Monetary Fund?

48. What is the name of associate which was merged with State Bank of India in July 2011?

49. What are the highlights of the draft Mining Bill?

50. Why did RBI penalize Citibank recently?

51. With which country India faced problems relating to oil payments?

52. What is a self-help group (SHG)?

53. What is National Financial Switch?

54. How do you define a high net worth individual (HNI)?

55. What is solvency margin?

56. What is a warehouse receipt?

57. Why is it important to monitor end of funds after loan disbursals?

58. What is shadow banking?

59. What is an inflation-indexed bond?

60. Why did IRDA impose a penalty on SBI Life?

61. What are currency futures?

62. What is the minimum limit for sending remittance through RTGS facility?

63. What is FDI?

64. What is the objective of KYC guidelines?

65. What are semi-closed prepaid instruments?

66. Why is the Government of India increasing fuel prices?

67. What is CERSAI?

68. What is NIM?

69. Why did RBI raise interest rate on SB deposits in May 2011?

70. Which Chinese bank has opened its first branch in India recently?

71. How much money can resident India transfer money as a gift out of India?

72. What is a green channel counter?

73. What is the loan to value (LTV) ratio for housing loans?

74. How do you define a ‘small account’?

75. Does RBI collect any service charges from banks for RTGS transactions?

76. What is credit risk?

77. What is a payment in due course?

78. What is the maximum percentage of voting rights in a private sector bank?

79. What are ‘Gilt edged’ securities?

80. What factors determine interest rates?

81. What do you mean by ‘buffer stocks’?

82. What is a Floating-rate Bond?

83. What is LAF?

84. What is Secondary Market?

85. What is Yield to maturity (YTM)?

86. What is Mezzanine Finance?

87. What is a dear money policy?

88. What is working capital?

89. What is a capital account?

90. Can an NRI be a joint accountholder in a resident’s SB account?

91. Can banks issue prepaid instruments to corporates?

92. What is time limit set by RBI for resolution of failed ATM transactions?

93. What is the limit for housing loan under priority sector?

94. What is the revised provision for sub-standard assets?

95. What is provisioning coverage ratio (PCR)?

96. Is it necessary that all nominations and cancellation/variation of nominations are required to be witnessed?

97. Can an exporter liquidate the post-shipment rupee export credit from rupee resources?

98. What is CAFRAL?

99. What are the mobile banking services offered by banks?

100. What is Swavalamban Scheme?

101. Whether ‘Aadhaar’ letter issued by the UIDAI is valid under KYC Norms?

Note on author: The author in an investment analyst and writes copiously on financial markets – equities, bonds, currencies, taxes, Indian economy, etc. He has written more than 130 articles running into 800 pages of original content – mostly pertaining to financial markets. You can read these articles on:

www.ramakrishnavadlamudi.blogspot.com