Topics for Economics
* Macroeconomics and Economic Development in India
> Smart notes for Troubled Global Economy
- US’ inflation rate was at 9.1% in June, the highest in 40 years, and FED action to increase the interest rate.
- As the US FED rate increases, the investor finds it more attractive and less risky. So, more and more investors are rushing to invest money in the US. This, in turn, has made the dollar become stronger than all the other currencies.
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- The massive gap between the current US inflation rate — over 9%— and the Fed’s target inflation rate — 2%
- Most observers expect that the Fed would have to resort to such aggressive monetary tightening that the US economy will end up having a hard landing.
- When a central bank is successful in slowing down the economy without bringing about a recession, it is called a soft-landing — that is, no one gets hurt.
- But when the actions of the central bank bring about a recession, it is called hard-landing.
- Recession is a slowdown or a massive contraction in economic activities. A significant fall in spending generally leads to a recession.
- Over the years, inversion of the bond yield curve has become a strong predictor of recessions.
- In the current instance, the US Fed (US’ central bank) has been raising short-term interest rates, which further bumps up the short-end of the yield curve while dampening economic activity.
- Bonds are essentially an instrument through which governments (and also corporations) raise money from people.
- Typically government bond yields are considered risk-free interest rate
- The yield curve is the graphical representation of yields (profit) from bonds.
- Inverted Bond yield curve:
- As one buys bonds of longer tenure logically one gets higher yields and return should be higher.
- But, An inversion of the yield curve essentially suggests that investors expect future growth to be weak.
- Every central bank is trying to counter the US Fed and raise interest rates themselves in order to ensure their currency doesn’t lose too much value against the dollar.
- This has been termed ‘reverse currency war’.
- E.g. India being import dependent, a weaker currency would mean a higher import bill and therefore RBI is trying to defend Indian Rupee against Dollar.
> Remittance in India
- As per RBI, the US has become the top remittance source after UAE (in 2020-21) for India.
- India received about $87bn in remittances in FY21 (the world’s highest).
- Among states:
- The share of the traditional remittance recipient states of Kerala, Tamil Nadu and Karnataka has almost halved in 2020-21.
- Maharashtra has emerged as the top recipient state surpassing Kerala.
- The share of remittances from the GCC region in India’s inward remittances is estimated to have declined from more than 50 per cent in 2016-17 (last surveyed period) to about 30 per cent in 2020- 21.
* Money Market, and Capital Market
> Smart notes for Zero-coupon zero principal instrument
- “Zero-coupon zero principal instrument” (ZCZP) means an instrument issued by a Not for Profit Organisation which shall be registered with the Social Stock Exchange segment of a recognised StockExchange.
- Securities are fungible and tradable financial instruments used to raise capital in public and private markets.
- There are primarily three types of securities:
- Equity—which provides ownership rights to holders;
- Debt—essentially loans repaid with periodic payments;
- Hybrids—which combine aspects of debt and equity.