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U.S. President Barack Obama forecast a dismal first quarter for the economy as datashowed U.S. auto sales fell 40 percent in February and sales of previously existinghomes in January tumbled to a record low

Premier Wen Jiabao assured on Thursday that China will achieve 8 percent growth thisyear despite a deepening financial crisis, setting out export support and spending pro-grammes to shore up the economy.

The Bank of England cut interest rates by another 50 basis points on Thursday to arecord low of 0.5 percent, and said it would buy assets worth 75 billion sterling in adrive to help the British economy by expanding the money supply.

The U.S. unemployment rate hit a 25-year high of 8.1 percent last month as employ-ers buckling under the strain of a severe recession axed 651,000 jobs.

Intel Corp could face a hefty fine from EU regulators over charges it fiddled with retailchannels to suppress competitors, but of more concern could be any fresh rules im-

posed by the EU.

RBI verifying solvency of 10 realty firms-Large-scale borrowing has distorted the nor-mal debt equity ratio for most of the companies and made them highly leveraged.

Bond yields fall as RBI rejects bids-Government bonds jumped the most in two monthsafter the central bank rejected all bids at a government debt auction.

Bank credit flow goes up, courtesy year-end demand-With the financial year drawing toa close, bank credit flow has seen a revival of sorts with advances rising by Rs 21,307

crore. Centre, states want IPL dates revised further-IPL Been asked to further revise match

schedules for the coming Twenty20 as they are overlapping with the general electiondates.

More fiscal stimulus needed, say economists-monetary policy alone cannot put theeconomy back on the high growth trajectory & that future measures should be sector-specific.

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International Headlines

National Headlines

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tors Check 5

tors Check Continued 6

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& Crosswords 8

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Crosswords, Alumni Speak 11

modities Market 10

ni Speak, Answers 12

DE THIS ISSUE:

Repo 5% Rev Repo3.5%

CRR- 5.0% Inflation2.43%

IIP- 3%

PCR Nifty 0.96 Forex Res-$279.29 bill

91day T-Bill-4.58%

10 year G-SecYield 7.02%

AUM-INR5Trillion

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THE 1973 OIL CRISIS STARTED ON OCTOBER 15, 1973, WHEN THE MEMBERS OF ORGANIZATION OF ARABPETROLEUM EXPORTING COUNTRIES (OAPEC) PROCLAIMED AN OIL EMBARGO IN RESPONSE TO THE U.S.DECISION TO RE-SUPPLY THE ISRAELI MILLITARY DURING THE YOM KIPPUR WAR (SYRIA AND EGYPT AT-TACKING ISRAEL)

OPEC DECLARED IT WOULD NO LONGER SHIP OIL TO THE UNITED STATES AND OTHER COUNTRIES IF THEYSUPPORTED ISRAEL IN THE CONFLICT. INDEPENDENTLY, THE OPEC MEMBERS AGREED TO USE THEIR LEV-ERAGE OVER THE WORLD PRICE-SETTING MECHANISM FOR OIL IN ORDER TO STABILIZE THEIR REAL IN-COMES BY RAISING WORLD OIL PRICES. THIS ACTION FOLLOWED SEVERAL YEARS OF STEEP INCOME DE-CLINES AFTER THE END OF BRETTON WOODS (THUS TAKING U.S OUT OF THE GOLD EXCHANGE STANDARDAND ALLOWING THE DOLLAR TO FLOAT). FOR MOST OF THE TIME, THE INDUSTRIALIZED NATIONS WEREDEPENDENT ON THE OPEC FOR THEIR OIL SUPPLY AND SO THEY WERE BADLY AFFECTED BY THE CRISIS.THE EMBARGO WAS LIFTED IN MARCH 1974 AFTER NEGOTIATIONS AT THE WASHINGTON OIL SUMMIT

CONSEQUENCES: OPEC FORCED THE OIL COMPANIES TO INCREASE THE OIL PRICE DRASTICALLY THE TRADITIONAL FLOW OF CAPITAL REVERSED AS THE OIL EXPORTING NATIONS ACCUMULATED

VAST WEALTH USED IN ARMS PURCHASE, AID TO UNDERDEVELOPED NATIONS ETC OPEC-MEMBER STATES IN THE DEVELOPING WORLD WITHHELD THE PROS-

PECT OF NATIONALIZATION OF THE COMPANIES' HOLDINGS IN THEIRCOUNTRIES

RATIONING OF GASOLINE IN U.S NEW YORK STOCK EXCHANGE LOST $97Billion IN 6 WEEKS VARIOUS ENERGY SAVING SCHEMES LIKE DAYLIGHT SAVING SCHEME, A

NATIONAL MAXIMUM SPEED LIMIT ETC WERE INTRODUCED IT SPURRED AN INTEREST IN RENEWABLE SOURCES OF ENERGY AND RELATED RESEARCH

MACROECONOMIC EFFECTS:JAPANS ECONOMY SHIFTED FROM AN OIL INTENSIVE INDUSTRY TO INVESTMENTS IN ELECTRONICS. THEWESTERN NATIONS' CENTRAL BANKS DECIDED TO SHARPLY CUT INTEREST RATES TO ENCOURAGEGROWTH, WHICH ACTUALLY RESULTED IN STAGFLATION.

EFFECT ON INTERNATIONAL RELATIONS: THE UN PASSED A RESOLUTION TO CREATE A NEW INTERNATIONAL ECONOMIC ORDER IN WHICH

RESOURCES,TRADE AND MARKETS WOULD BE MORE EQUITABLY DISTRIBUTED AMONG THE SOU-HTERN HEMISPHERE COUNTRIES DEPENDING ON THE BENEFITS DERIVED FROM THEIR EXPLOITA-TION

FALL OF OPEC DUE TO COUNTRIES MOVING TO ALTERNATE SOURCES OF ENERGY AND THEIR PRO-DUCTION BEING SURPASSED BY OTHER COUNTRIES

GROWING FEARS ABOUT THE ENERGY INDEPENDENCE OF THE WEST AND THE ABSENCE OF WEST-ERN RIVAL IN THE MIDDLE EAST LED TO A DEPENDENT REATIONSHIP WITH THE WEST

IMPACT ON MOTOR INDUSTRY: AFTER THE CRISIS, GASOLINE COST MORE DUE TO HEAVY TAXES LEVIED ON THEIR IMPORTS AND

THUS REDUCED THE DEMAND FOR LARGE CARS SMALL CARS ( 4 CYLINDER AND 6 CYLINDER ENGINES) HAD HUGE DEMANDS AS COMPARED TO

THEIR SUPPLY EUROPEAN AND JAPANESE AUTOMAKERS EXPORTED THE BIG CARS TO U.S TO MEET THE DEMAND

Scandal

Economies are supposed to serve human ends.. not the other waets make a good servant, a bad master and a worse religion-Am

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THE 1973THE 1973THE 1973THE 1973

OIL CRISISOIL CRISISOIL CRISISOIL CRISIS

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Q1: Briefly describe your job profile?Ans: I am presently working as Assistant General Manager, presently in the Risk Management Departmentof a public sector bank in Bangalore. I have more than three decades of banking experience, coveringvarious areas such as branch banking, Credit, Merchant Banking, Investment, Audit/Inspection, Risk Man-agement and also overseas banking exposure recently for three years. My Educational qualification isMSC, MBA (Finance), LLB, CAIIB.

Q2: How do you feel the economic downturn is affecting the banking sector in India?Ans: Indian banking system has demonstrated much resilience with the underpinnings of a strong regula-tory framework and sound practices, when compared to banking sector at western developed countrieswho have witnessed a sharp setback as a result of global financial crisis. Again, Indian banking sector hasnot experienced any contagion similar to its peers in the emerging market economies. Whereas, we knowthat 25 banks have failed in USA in the year 2008 starting from Lehman Brother and 16 banks are alreadyup on their belly in the first two months of this year 2009! Not even a single bank in India had any majorimpact of the financial crisis. Indian banks had no direct exposure to any global toxic assets and had sofar handled the financial crisis relatively better, thanks to prudential measures taken by the RBI. RBI'scautious stance helped rein in the otherwise rapid-growth witnessed in some sec-tors, particularly, real estate, capital market which is termed as sensitive sector.Reckless lending to real estate sector and securitization of those loan products(Collateral Debt Obligations - CDOs) and lack of regulation was the root-cause forthe sub-prime crisis in USA which has spread over entire global financial system.The RBI used a variety of instruments such as incremental risk weights for sensitivesector exposures, Market stabilization scheme (MSS) bonds, Liquidity AdjustmentFacility (LAF), Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) levers toensure banks functioned in a well-regulated environment.

Q3: Do you feel in near future the situation is going to change for better or forworse specially in context of banking sector?Ans: During the last five years India clocked an unprecedented nine per centgrowth. At the heart of India's growth were a growing entrepreneurial spirit, rise in productivity and in-creased savings. These fundamental strengths and our domestic consumption rate continue to be in place.Nevertheless, the global crisis dent India's growth trajectory, as external demand, internal investmentswould slow down. This would impact Indian Banking sector as well. The credit growth rate of the banksmay reduce as a manifestation of shrinking demand from manufacturing as well as service sector. Banksmay try to de-risk their balance sheet and preserve capital in an environment that spells uncertaintyabout duration of the economic down turn. There are chances of deteriorating the quality of assets orcredit portfolio of the banks and pressure may build up on capital holding of the banks due to higher pro-visions and reduced earnings. Only when the global economy begins to recover, the Indian economic con-ditions may turn around much sharper and swifter, backed by strong fundamentals and the untappedgrowth potential. Some experts say Indian economy may recover fast and may show signs of recovery bylast quarter of this year. It is difficult to guess how long this down-turn may continue. But on a roughguess, according to me, our financial sector, particularly capital market, banking sector etc may come out

of the impact after first or second quarter of next financial year i.e., June 2010/September 2010.Till then,as rightly said by the Governor of RBI There is a period of painful adjustment ahead of us"

Q4: What do you find as the most challenging aspect of your job?Ans: Right now I am overseeing implementation of Basel II norms in our bank. Understanding intricaciesof various parameters of the Basel norms and its analysis, identifying the required technological

InterviewP A G

M.V.MALLAYA, Assistantgeneralmanager,Riskmanagement,Canara bank

If all economists were laid end to end, they would no

George Bernard Shaw (1856 - 1950)

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infrastructure and its implementation, creating a data warehouse for a century old bank spreadacross the country which is the one of the important requirements for risk management on real-timebasis, grooming and developing skill level of persons involved in the implementation of Basel normsand risk management initiatives are some of the major challenging aspects of my present placementin our bank.

Q5: Do you want to convey any message to the budding managers?Ans: Nothing specific! Do not get disheartened or pessimistic due to the present economic crisis,which may directly or indirectly impact your present or near future. These crises are cyclical in na-ture. Situation will definitely improve. Think differently, Dream big and work towards realizing yourdreams. Show eagerness to learn new things. Ultimately your winning attitude, your willingness, yourperseverance and passion pays. Be disciplined and plan well in advance. Display grace under pres-sure. Be calm in stressful situation. Retain peace in times of grief.

International Foreign Exchange Master Agreement - IFEMA is an agreement setforth by the Foreign Exchange Committee that reflects the best practices fortransactions in the foreign exchange market. IFEMA was published in 1997 andsponsored by the British Bankers Association, Canadian Foreign Exchange Com-mittee and the Tokyo Foreign Exchange Market Practices Committee.

Kiwi is a slang term for the New Zealand dollar (NZD). It derives its name fromNew Zealand's national icon - a flightless bird called a kiwi - which is pictured onone side of the country's $1 coin.

the largest nuclear production industry in the world, Electricite de France, has ac-cumulated a debt of over 30 billion US dollars, making it the most Indebted com-pany in the world

Panel bank is the name given to the group of banks contributing to the EURIBOR.This group is made up of the largest participants within the Euro money market.

China Investment Corporation (CIC) is a government-sponsored entity of thePeople's Republic of China that seeks to invest in securities and commoditiesabroad. The CIC was initially funded with around $200 billion, which originatedfrom the issuance of long-term treasury bonds by the People's Bank of China(PBOC). The bond proceeds were then converted into dollars through the foreignexchange market.

Elephants is a slang for large institutions that have the funds to make high vol-umes trades. Due to the large volumes of stock that elephants deal in, any in-vestment decisions that they make will have a large influence on the price of theunderlying financial asset.

COMEX is the primary market for trading metals such as gold, silver, copper andaluminum. Formerly known as the Commodity Exchange Inc., The COMEXmerged with the New York Mercantile exchange in 1994 and became the divisionresponsible for metals trading and hence the world's largest physical futures trad-ing exchange.

Did You Know ?

Interview Continued

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A negotiable financial instrument issued by a bank to represent a foreign company's publicly traded securi-ties. The depositary receipt trades on a local stock exchange. Depositary receipts make it easier to buyshares in foreign companies because the shares of the company don't have to leave the home state. Whenthe depositary bank is in the U.S., the instruments are known as American Depositary Receipts (ADRs).European banks issue European Depositary Receipts, and other banks issue Global Depositary Receipts(GDRs).

American Depository Receipts (ADR):- A U.S. dollar-denominated equity share of a foreign-based com-pany available for purchase on an American stock exchange. American Depositary Shares (ADSs) are issuedby depository banks in the U.S. under agreement with the issuing foreign company; the entire issuance iscalled an American Depositary Receipt (ADR) and the individual shares are referred to as ADSs.Depending on the level of compliance with U.S. securities regulations the foreign company wishes to follow,the company may either list its shares over-the-counter (OTC) with low reporting requirements or on a ma-

jor exchange like the NYSE. Listings on the latter exchanges generally require the same level of reporting asdomestic companies, and also require adherence to GAAP accounting rules. Foreign companies that chooseto offer shares on U.S. exchanges gain the advantage of a wider investor base, which can also lower costsof future capital. Even though ADSs represent real claims to foreign shares (and could be converted if theinvestor wished to do so), there is currency risk involved in holding them. Fluctuations in the currency ex-change rate between the USD and the foreign currency will affect the price of shares as well as any income

payments, which must be converted into U.S. dollars.

Global Depository Receipts (GDR):- A bank certificate issued in more than one country for shares in a foreign company. The shares are held bya foreign branch of an international bank. The shares trade as domestic shares, but are offered for saleglobally through the various bank branches. A financial instrument used by private markets to raise capitaldenominated in either U.S. dollars or Euros. These instruments are called EDRs when private markets areattempting to obtain Euros.

European Depository Receipts (EDR):-A negotiable security (receipt) that is issued by a European bank and that represents securities which trade

on exchanges outside of the banks home country. Abbreviated as "EDRs", these securities are traded onlocal exchanges and used by banks - and issuing companies in the U.S. and other countries - to attract in-vestment capital from the European region.

Also known as "Euro Depository Receipts", which may or may not imply that the euro is the currency thereceipt is issued upon. While the euro isnt the only currency that can be used to issue and trade EuropeanDepository Receipts, it is the most common because of its widespread adoption in Europe. American Deposi-tory Receipts (ADRs) are the equivalent of this type of bank receipt in the U.S. Investors in EDRs are enti-tled to the same dividends and capital gains as the investors who hold common shares in the same com-pany.

INDIAN DEPOSITORY RECEIPTS (IDRs): -As per the definition given in the Companies (Issue of Indian Depository Receipts) Rules, 2004, IDR is aninstrument in the form of a Depository Receipt created by the Indian depository in India against the under-lying equity shares of the issuing company. In an IDR, foreign companies would issue shares, to an IndianDepository (say National Security Depository Limited NSDL), which would in turn issue depository receiptsto investors in India. The actual shares underlying the IDRs would be held by an Overseas Custodian, whichshall authorize the Indian Depository to issue the IDRs. The IDRs would have following features:

Investors Check: Depository Receipts P A G

Economics is extremely useful as a form of employment for ec John Kenneth G John Kenneth G John Kenneth G(1908(1908(1908(1908 ---- 2006) 2006) 2006) 2006)

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Overseas Custodian: It is a foreign bank having branches in India and requires approval from FinanceMinistry for acting as custodian and Indian depository has to be registered with SEBI.

Approvals for issue of IDRs: IDR issue will require approval from SEBI and application can be made forthis purpose 90 days before the issue opening date.

Listing: These IDRs would be listed on stock exchanges in India and would be freely transferable.

Eligibility conditions for overseas companies to issue IDRs:

Capital: The overseas company intending to issue IDRs should have paid-up and free reserve of at least$ 100 million.

Sales turnover: It should have an average turnover of $ 500 million during the last three years.

Profits/dividend: Such company should also have earned profits in the last 5 years and should havedeclared dividend of at least 10% each year during this period.

Debt equity ratio: The pre-issue debt equity ratio of such company should not be more than 2:1.

Extent of issue: The issue during a particular year should not exceed 15% of the paid-up plus free re-serves.

Redemption: IDRs would not be redeemable into underlying equity shares before one year from date of issue.

Denomination: IDRs would be denominated in Indian rupees, irrespective of the denomination of un-derlying shares.

Benefits: In addition to other avenues, IDR is an additional investment opportunity for Indian investorsfor overseas investment.

Boomernomics: An investing strategy that involves buying equities directly related to the spending behav-iour of baby boomers.

Mothballing: A desirable production strategy for a company that has high operating costs, mothballing al-lows a factory produce goods upon demand instead of on a continual basis.

Channel Stuffing: A deceptive business practice used by a company to inflate its sales and earnings fig-ures by deliberately sending retailers along its distribution channel more products than they are able to sellto the public.

Blitzkrieg Tender Offer: A takeover offer that is intended to be so attractive that very few objections willarise and the takeover will occur swiftly. In German, blitzkrieg (lightning war) refers to a surprise offensivethat is both powerful and swift and was used to describe World War II bombing raids.

Investors Check ContinuedP A G

Economics is extremely useful as a form of employment for ec John Kenneth G John Kenneth G John Kenneth G

(1908(1908(1908(1908 ---- 2006) 2006) 2006) 2006)

Buzz Words

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P A G

Arkapratim Basu (Jr Finance) - FOR

There are three things about SWFs which make govern-ments in the West apprehensive: their size, their ownershipby foreign governments and the opaqueness of their mo-tives. While the amounts invested and the equity stakes ob-tained so far are still relatively small, the resources that theSWFs command are vast (expected to touch $12 trillion by2012) and reflect a transfer of financial power from the Westto the East.

To be sure, unlike hedge funds, SWFs havent so far shownany intrusive or destabilising tendencies. Also, SingaporesTemasek, Abu Dhabi Investment Corporation and Norwaysfund have passed IMFs preliminary scrutiny on transpar-ency. That, however, has not overcome the western worldsparanoia of SWFs.

Should India join this elite club by setting up its own SWF?Indias foreign currency reserves exceed $300 billion, whichare invested in low-risk OECD government securities andbank deposits yielding less than 4 per cent. Indeed, the costof creating and sterilising these reserves is far more thanthe returns they yield. When one considers that Temasekhas earned 18 per cent on its $100 billion portfolio and Har-vard University 13 per cent on its $35 billion endowmentsince inception, there appears to be a strong case for settingup an Indian SWF.

There are, however, weighty reasons for India to proceedwith caution. Unlike oil exporters or China, India has built upher forex reserves from capital inflows rather than exportearnings. Other countries have amassed large reserves fromcurrent account surpluses or export of staple commoditieslike oil, whereas Indias reserves have arisen mostly fromcapital flows such as foreign direct investment (FDI), portfo-lio flows from foreign institutional investors, external com-mercial borrowings and short term credit.

Unlike them, India faces a current account deficit as well asfiscal deficit. In that sense, it is a dollar deficit country. Itsincreasing reserves also reflect, in part, the lower absorptioncapacity of the economy, which may pick up with the econ-omy moving on to a higher growth trajectory. In such asituation it is very difficult to define the adequate level of reserves and identify the excess that could be diverted toriskier assets for a higher return.

These technical considerations justify the need for caution,but do not negate the case for SWF altogether. So long asemerging economies including India promise a larger return

on capital than developed countries, they will continue toattract capital inflows. Moreover, as Indias forex reservespile up, so do their costs.

And, it is nobodys case that India should put all or evenmost of her reserves into an SWF. A modest proportion of around 15 per cent seems safe enough.

Ashish Bhagat (Sr Finance) - AGAINST

Currently, the pros and cons for the establishment of an In-dian sovereign wealth fund (SWF), as generally understoodnow, are still under debate. India is watching with great in-terest the development of global codes, standards and prac-tices in regard to SWFs, both in view of the presence of SWFsin the Indian financial markets and the ongoing debate onestablishing an Indian SWF.

YV Reddy, Reserve Bank of India (RBI) Governor, ata Washington roundtable conference on April 14, 2008.

Clearly, there is much to think about before India can embarkon the path of establishing an SWFa state-run portfolio fundthat invests in a product mix of different fixed income, equity,commodity and realty instruments to garner better returnsbecause of higher risk tolerance. Hence, it is different fromthe existing foreign exchange reserves, which are invested insafe but low-paying US treasury bonds.

Although the debate for an SWF had started some years ago,its clamour has increased only now, primarily because thegovernments mounting reserves are in dollarsa currency

whose value is steadily declining. Forex reserves, which stoodat $312 billion on April 4, 2007, have been further hurt bysharply lower interest rates in US treasuries at 2% to 3%.

Hence, the RBI has been incurring a high quasi-fiscal costlosing money on every dollar being remitted into the countrydue to the cost of sterilisation (converting the dollar into therupee)and the money earned from the US treasury bonds.

The din to set up SWFs had also increased because of somenew developments. West Asian nations, oil-rich Gulf statesand cash-rich Asian countries have started playing an impor-tant role in cross-border investments, as evidenced in therecent instances of Citigroup and Merrill Lynch being bailed

out by the likes of Abu Dhabi and Singapore SWFs. Hence,there has been pressure from various quarters, includingthose from the Prime Minsters Economic Advisory Council, toset up SWFs. Not just to improve returns on at least part of the foreign exchange reserves, but also to help the countryplay a bigger role in geopolitical and economic strategy.

Not ready....But whether India is ready for an SWF is the moot question.Clearly, the two conditions that have helped other nationslaunch SWFsconsistently high current account surplusesand huge earnings from exports of commodities such as oiland gasare missing from India. China and Singapore arethe best examples of the former, while Abu Dhabi fits in best

in the next category.

For instance, India, apart from having a relatively high cur-rent account deficit ($5.4 billion in the third quarter of 2007-08) also has an unsustainably high trade deficit of $80.5 bil-lion (2007-08).

Secondly, India remains a huge net importer of oil and gas (oil imports touched $61.16 billion in the first 11 months of 2007-08) and also has a relatively high fiscal deficit3.3% of GDP. On the corpus there are also differences. While the govern-ment has stated it is ready with a $5 billion package, experts believe it is far too little to play an effective role in global af-fairs. Says Ajay Shah, Senior Fellow at the National Institute of Public Finance and Policy: "India has to have an SWF of ateast $100 billion to be of any consequence."

IS INDIA READY FOR SWF?

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P A G E 8

QuizThe most important benefit of population sizeand growth is the increaseit brings to the stock of useful knowledge.Minds matter economically as much as,or more than, hands or mouths- Julian Simon

Crosswords

Q1. A form of foreign direct investment where a parent company starts anew venture in a foreign country by constructing new operational facili-ties from the ground up.Q2 A theory stating that an investment firm that passes all capital gains,interest and dividends on to its customers/shareholders shouldn't be lev-ied at the corporate level like most regular companies.Q3 Aegon Religare Life Insurance is planning to enter which segment?Q4 Which Bank has tied up with Crisil Risk Solutions, a division of CrisilLtd, to help meet the advanced Basel II approaches.Q5 Name the investment bankers appointed by Larsen & Toubro to ad-vise on a possible deal with the scam-tainted Satyam Computer Ser-vices.Q6 When were the Basel II norms for banking supervision implemented?

2. In which country did the world's first paper money appear?4. A negotiable certificate of deposit representing one or more shares with

a face value denominated in US dollars and the dividends of which arealso paid in US dollars.

5. What is a coin with a minting error called?7. Which is the oldest stock exchange in Asia?

1. An act of selling commodity at different prices in different markets istermed as

2. A speculator in the stock market who be-lieves that prices will go down is called

4. The sale of a block of bonds and the pur-chase of another block of similar marketvalue is called

Across

Down

Modern man drives a mortgaged car over a bond-

financed highway oncredit-card gas. Earl Wilson

An economist is an expert who will know tomorrow whythe things he predicted yesterday didn't happentoday.Laurence J. Peter (1919 -

1988)

ducation is both a tool of social justice as well as a fundamenta

Kevin Rudd Kevin Rudd Kevin Rudd Kevin Rudd

1

2 3

4

5

7

EclipseCrossword.com

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P A GReal Effective Exchange Rate (REER)

The weighted average of a country's currency relative to an index or basket of other major currenciesadjusted for the effects of inflation. The weights are determined by comparing the relative trade bal-ances, in terms of one country's currency, with each other country within the index. This exchange rateis used to determine an individual country's currency value relative to the other major currencies in theindex, as adjusted for the effects of inflation. All currencies within the said index are the major curren-cies being traded today: U.S. dollar, Japanese yen, euro, etc.

This is also the value that an individual consumer will pay for an imported good at the consumerlevel. This price will include any tariffs and transactions costs associated with importing the good. Therupees sharp depreciation against the dollar since the beginning of last year has begun reflecting inthe Real Effective Exchange Rates (REER). According to the Reserve Bank of Indias November bulletin,the REER retreated to 103.67 against a six currency basket. In April last year, the index was 112.16.The six currency basket with a base of 1993-94 comprised the US dollar, Euro, Yen, Pound Sterling,Hong Kong dollar and Renminbi Yuan. In this basket the US dollar and the Euro have the highestweights at 28.19 per cent and 35.12 per cent.

Measures to be taken :-

RBIs forex swap window will help Re The weights reflected the bilateral trade between India andthe regions represented by currency basket. The drop in the REER brought it closer to the levels of 2000-01 when it was 102.82 .

Rupees done with falling thats good :- The Nominal Effective Exchange Rate (NEER is theweighted average of nominal exchange rates in the currency basket against the home currency) sincethe beginning of last year was 62.58, lower than its April level of 70.63.

Fall against Yuan sharpest:- A fall in the index implied a depreciation of the rupee against the re-spective currencies. Since the beginning of last financial year, the rupee depreciated by 19 per centagainst the US dollar. But the rupees depreciation against the Yuan was the sharpest, by over 20 per

cent for the same period. For the same period, the Yuan depreciated only 2.7 per cent against the USdollar. The depreciation of the rupee against the Yuan was indicative of the high trade between thetwo countries. The high trade was also evident from the increased weightage of the Yuan in the cur-rency basket. At the beginning of the decade, the Yuans weight in the currency basket was 4.65 percent. The Yuans weight currently is 11.96 per cent. A falling REER and the NEER normally indicate animproved export competitiveness regime. Export growth in October last year dipped 15 per cent onyear on year basis or a little over 20 per cent if the petroleum sector is excluded. If in the initial yearsthe rupees appreciation was on account of massive capital inflows, the correction in the REER sincethe beginning of this year was largely driven by capital outflows, in particular an exodus by foreign in-stitutional investors. FII have pulled out about $13.8 billion since the beginning of last financial year.In addition, oil prices also contributed to the REER correction. Oil prices averaged $74 a barrel in Octo-

ber last year as against $ 105 in April last year. On a year-on-year basis however, oil prices werelower by $ 5 a barrel, though the lower prices were offset by higher imports during the period. Indiascurrent level of petroleum imports are about 2.8 million barrels a day, according to estimates made bythe International Energy Association. Last year, the average imports into the country were at the rateof 2.4 million barrels per day at $ 79.21 a barrel. Last year, the import basket prices between Apriland October averaged about $95 a barrel.

n economist is a surgeon with an excellent scalpel and a rough

he dead and tortures the living-Nicholas Chamfort (1741 - 1794

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COPPER SPOT PRICE: (Per Kg) 185.15FUTURE PRICE: (Contract expiring on 30/Apr/2009) 189.70Copper is a very important element and the oldest known commodity in the world that directly affects theworlds economy. It stands at the third place in context of the world consumption after steel and aluminum.It is largely used in electrical appliances, as it is the cheapest metal, which is a good conductor of electricity.

It is also considered safe as a raw material in wire making. Alloys of copper like bronze, brass, Monel andspeculum metals are also very popular and are extensively used throughout the world.

Market Influencing Factors Price fluctuations of copper in London Metal Exchange Production level of copper in the world Growth prospects of the major copper consuming countries of the world Growth prospects of the various consuming sectors in the market

Copper prices are trading sideways with immediate support for MCX April contract is seen at Rs.183.70. Fur-ther below, crucial support is seen at 179.70 levels. Whereas resistance is seen at Rs.189.90 levels & furtherupwards at Rs. 191.85. The 5 day moving average supports the current rally. A short run bullish view of cop-per can be inferred with the rising price, increasing volume & open interest. Recently the RSI was in over-bought territory but due to the selling pressure it has reached a safe zone thus the rally is expected to con-tinue in the remaining days of the contract. But it seems current month copper contract is forming aRounding Top hence traders are advised to be extremely careful & should trade with stop loss at slightlybelow support levels.

Indian copper marketIndia does not provide a big market for copper. Due to shortage of copper mines and a low percentage of

productivity of copper in the mines, India suffers a loss in the level of production and it has to completelydepend on the copper ore imports. Also, not many companies are indulged in the refining and extraction of copper from its alloys and ores.

India produces copper from the imported copper ore that accounts to around 6 lakh tons of production. Thisproduction level is contributes to a mere 4% share in the total copper production in the world. Indian marketis divided into three parts i.e. primary and secondary. Primary segment comprises of the producers that con-vert copper ore into refined copper. Three companies namely Hindustan Copper ltd, Birla Copper and SterliteIndustries constitute this primary segment. Secondary segment comprises the producers that manufacturevalue added products made from copper like wires, foil etc.

Commodities MarketP A G E

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P A G E

The domestic consumption demand of copper is around 5.5 lakh tons in the country. A major percentage i.e.10% of the total consumption in India is contributed by the two major telecommunication providers namelyBSNL and MTNL. The rest of the demand is contributed by the construction and automobile sector.India has always been an importer of copper ore to satisfy the domestic consumption demand. The countriesfrom the ore is imported into India are

Chile Indonesia Australia Canada

But, due to the rise in the production of the three major players in the Indian market, the country is nowemerging as a net exporter. The production of copper has significantly during the last few years that has en-abled India not only to satisfy it is own domestic demand but export refined copper in small quantities. Theprices of copper in Indian market are highly dependent on the prices in London Metal Exchange.

Disclaimer: The mentioned ideologies in this report are based on the research done by the ChaanakyaTeam of Christ University Institute of Management. The team & the institution will not be responsible for anykind of losses incurred by any party either directly or indirectly based on our research results, though wehave presented the best of our knowledge.

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EXPERIENCE IN THE ORGANIZATION:The experience is definitely quite an enriching one, especially in terms of value addition to my professional life. Being a part of a smaller team hasalways been an advantage as it brings with it lot of responsibilities and in

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EXPERIENCE IN THE ORGANIZATION:Kotak is a good place for one to start off their career in the markets. It functions just like acorporate and has both bitter and sweet experiences. On the whole, a good place for learningand building character which is essential to reach the top.

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