Niveshak December Issue

Saturday, December 20, 2008 , Posted by Team Niveshak at Saturday, December 20, 2008

Day by day, the world is plunging deeper and deeper into the financial crisis. Bailouts after bailouts, rate cuts (read interest rate) after rate cuts there seem to be no way out of this for some time. Negative economic and financial data galore in government reports and corporate financial statements across the globe. Probably this is the best time for us B-Schoolers to understand the dynamics of global economics and financial markets.

We, B-School students take cue of this opportunity and explore into emerging financial instruments and markets. One of the most innovative instruments that has come out recently is the “Death Bond”. A Death Bond is a security backed by life insurance which is derived by pooling together a number of transferable life insurance policies. The life insurance policies are pooled together and then repackaged into bonds and sold to investors. The peculiarity of this instrument lies in the fact that is not affected by standard financial risks. The only risk of holding a death bond is with the underlying insured person. If the person lives longer than expected, the bond’s yield will begin declining. But the risk associated with one policy is diversified as the number of policies increases in the pool of underlying assets.

Going back to the financial crisis, we pick up some learning and ideas on how to avoid similar crisis in the future. Some suggest the restructuring of the IMF as the answer while some demand the strict adherence to Basel-II norms as the best way to avoid bankruptcy of banks. But are the Indian Banks ready for these strict capital adequacy norms? An article addresses the concerns and challenges that Indian Banks face in toeing the line of Basel. One of us has also explored into the low interest rate regime of Japan for an answer for cheap money.

Sometimes too much of regulation makes an economy shock proof. We have tried to analyze how some regulations have made sure that the Indian economy is not much affected by the global crisis and still grows at a brisk pace of 7%. At the same time we notice that the stock markets of India have crashed heavily despite a decent economic growth. We shall try to chalk out a road to recovery in the sensex. Moreover in this issue, participants from B-Schools across India have also given their perspectives on the future (or The End) of Wall Street and the lessons learnt from the fall of the high street Investment Banks, most notably Bear Stearns. May be after reading this issue some of you will agree with the idea that we put across in the first paragraph of this message.

Wish you a happy reading.

Team Niveshak

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