Playbook of a Wandering Mind

The title may suggest that I am writing a post on some movie such as the Mission Impossible series or Blade series. However, for a shock effect that's not the case. Impossible Trinity is basically an economics concept. It is a set of policies which cannot be managed by a single central bank. Let’s say for now it is a set of 3 activities A, B & C, and when the banker tries to achieve A, it can manage B, but it cannot achieve/manage C and so on. So let’s define the Trinity now. In the example above there are 3 activities A, B & C. Here, A stands for A stable currency exchange rate, B stands for Free Capital Movement and C stands for An Sovereign Monetary Policy. The underlying reason for this theory is the uncovered interest rate parity. Uncovered interest rate parity states that in absence of risk premium, the arbitrage will ensure that the depreciation or appreciation of a currency vis a vis the other will be equal to the nominal interest ra...

2/04/2015 marked 80 years since Reserve Bank of India has been in operation. It has been wonderful 80 years of operations- managing the impossible trinity ain't am easy task & it has been doing it since ages. Impossible trinity in economics refers to managing exchange rates, inflation & industrial growth in a country (more on that in the other article). RBI has a policy of bi-monthly policy review in a year, wherein it conducts a review of the policy in force & modifies it if the need be. In its recent review on 07/04/2015 RBI kept its policy rate and CRR & SLR unchanged against the expectations of many bankers . First up is the purpose of RBI. RBI is a regulator of financial markets in India, majorly of banking sector. It is basically the central bank of India much like Federal Reserve in USA. It can release policy statements & thereby effect the rates in Indian economy by changing Repo rates, CRR & SLR. All banks in the country then accordingly c...

I must admit this one topic even had me mesmerized. The Reason was for few months I had heard oil prices falling constantly(it fell from 110$ to 40$ per barrel) & now suddenly the rise. To understand why this is happening the first step will be to understand why the prices fell in the first place. So let's begin... Many people write off the oil price fluctuations to Dollar fluctuations, that used to be the case earlier. Now however, the scenario has changed. A lot of other things have come into play & I would rather say dollar fluctuations now play a negligible role in oil prices fluctuations. Oil prices depend on 2 factors : Expectations & Demand-Supply play. 1.Demand-Supply play:  First let's analyze demand-supply play because that is the main factor in this falling prices. Previously, US used to import oil from UAE, Iraq & Iran. But recently, US started producing oil itself & stopped importing oil from these countries which led to additional s...