Banking for Beginners

Current turmoil in some US and European Banks has raised questions (in minds of general public) about various risks being faced by Banks, especially in the Indian context, and what measures Banks adopt for mitigation of such risks   Risk in Banking According to Wikipedia, The Oxford English Dictionary (OED) 3 rd edition defines risk as: “(Exposure to) the possibility of loss, injury, or other adverse or unwelcome circumstance; a chance or situation involving such a possibility.” Risks are inherent in business of banking. A bank which does not take fair amount of risk cannot grow. Excessive risk may result in faster growth in the short term but at the same time could lead the Bank to a situation which may not be good for its stakeholders.   As Banks primarily deal with money, perception of risk regarding Bank’s business or stability acquires added significance. Trust is the essential factor in business of banking and therefore it’s very important for Banks to see that...

In an earlier blogpost (06/04/2022), We had discussed dominance of US Dollar. It’s time to explore internationalization of Indian Rupee ie. INR. On 11 th July, 2022  in a landmark move, RBI relaxed guidelines for international trade in INR. RBI said “ to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports / imports in INR. ” In this context let’s examine internationalization of INR - past history, advantages / disadvantages and what lies ahead.   What is Internationalization of Rupee ? Internationalization of INR encompasses increased and freer use of the currency in cross border trade – both for imports and exports. Right now, most trade from and to India is denominated in US Dollars and an attempt is now being made to facilitate international trade in INR or making INR an i...

Those who are watching business television channels regularly or following on economic news, would have noticed that these days, more and more commentators are talking about US Dollar Index. For better appreciation, let us decipher the subject. What is Dollar index  Established in 1973, the US Dollar Index (USDX) is an empirical measure of the value of US dollar against six other foreign currencies (fixed basket of currencies), with assignment of varying weights to respective currencies ie. Euro  (EUR) 57.6 %, Japanese Yen  (JPY) 13.60%, British Pound  (GBP) 11.90%, Canadian Dollar  (CAD) 9.10%, Swedish Krona  (SEK) 4.20% and Swiss Franc  (CHF) 3.60%. Before 1999, when Euro became a legal tender, USDX consisted of ten currencies-Deutsche mark, French franc, Italian lira, Dutch guilder, and Belgium franc in addition to JPY, GBP, CAD, SEK and CHF. To draw an analogy, the value of a stock index like SENSEX or NIFTY is computed on the basis of a basket of ...