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Financial Market

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Home/Indian Economy/Financial Market/Page 2

Mains Answer Writing Latest Questions

Arshia Singh
  • 0
Arshia SinghBegginer
Asked: July 18, 2024In:
  • 0

How can we eliminate or minimize the risks of Financial Market ?  

question
  1. Barna_g10
    Barna_g10

    People start trading lured by the prospect of making a lot of money. But the truth is stock market is the toughest place to make easy money. Each trade is a test of your emotions.  So you need to keep an eye on your greed, fear and pride to ensure making profits or lose less and to minimize the impaRead more

    People start trading lured by the prospect of making a lot of money. But the truth is stock market is the toughest place to make easy money. Each trade is a test of your emotions.  So you need to keep an eye on your greed, fear and pride to ensure making profits or lose less and to minimize the impact cost. Here are some tips to better manage the emotional aspect of trading decisions-

    • Statistics: In today’s world, Data is gold. Rely on them. By thorough data analysis of the past performance of any particular stock, know the trends to decide whether to invest or not. Data gives certainty which in turn will give the much needed assurance.
    • Risk-appetite: The odds are against you but you cannot succumb to the hopelessness. Knowing your risk appetite will help you take the risks within your capacity.
    • Patience is the key: Stock-market demands patience and never giving up attitude. Practicing being patient will give you the edge you need to win.
    • Action first, prize later: Developing this attitude helps in dealing with emotional aspect of trading. Controlling what’s in your control that is researching, investing is the reputed companies or growing companies with a bright future will reduce the risk of loss, i.e. less emotional turmoil.
    • Financial Literacy: With new growing media channels to multiple news articles, information is at your fingertips now.  Find them, analyze them and use them to your best interest.

    Trading offers it’s own rewards regardless of winning or losing. So focus on the journey not the destination. You will feel more fulfilled and trade effortlessly.

     

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Eshan Fernandes
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Eshan FernandesBegginer
Asked: July 26, 2024In:
  • 0

Examine the strategies the government has implemented to address the problems the Indian banking industry is facing, including the problem of non-performing assets (NPAs), the need for recapitalization, and the growing significance of digital banking.

upsc: financial market
  1. Aaditya Kapoor
    Aaditya Kapoor Begginer

    Challenges Faced by the Banking Sector in India 1. Non-Performing Assets (NPAs): Definition and Impact: High NPAs: Non-performing assets (NPAs) are loans or advances that have not been repaid by borrowers and have become overdue. High levels of NPAs strain the financial health of banks by reducing tRead more

    Challenges Faced by the Banking Sector in India

    1. Non-Performing Assets (NPAs):

    • Definition and Impact:
      • High NPAs: Non-performing assets (NPAs) are loans or advances that have not been repaid by borrowers and have become overdue. High levels of NPAs strain the financial health of banks by reducing their profitability and capital base.
      • Recent Data: As of 2024, the gross NPAs of Indian banks stood at approximately ₹10 lakh crore, impacting the sector’s stability. For example, cases like those of Yes Bank and Punjab & Sind Bank highlighted the severity of the NPA issue.
    • Root Causes:
      • Economic Slowdown: Factors such as economic slowdown, sectoral stress (e.g., real estate and infrastructure), and poor credit appraisal practices have contributed to rising NPAs.
      • Covid-19 Pandemic: The pandemic exacerbated the problem by affecting the repayment capacity of borrowers and leading to a surge in stressed loans.

    2. Need for Recapitalization:

    • Capital Adequacy Challenges:
      • Capital Shortages: Many public sector banks (PSBs) have faced capital adequacy issues, necessitating substantial recapitalization to meet regulatory requirements and support lending.
      • Recent Developments: In 2023, the Indian government approved ₹70,000 crore in capital infusion for PSBs to strengthen their balance sheets and support credit growth. This move aimed to address the capital shortage and enhance the banks’ lending capacity.
    • Recapitalization Strategies:
      • Government Funding: The government has provided capital support through various schemes such as the Indradhanush Plan and the Recapitalization Plan. For example, the Recapitalization Plan of 2017 included an infusion of ₹2.11 lakh crore into PSBs to improve their financial health.

    3. Growing Importance of Digital Banking:

    • Digital Transformation:
      • Shift to Digital Channels: The growing adoption of digital banking channels, including mobile and internet banking, has transformed the banking sector. The push for digital banking has been accelerated by the increasing use of smartphones and internet penetration.
      • Recent Trends: Initiatives like the Digital India program and the launch of UPI (Unified Payments Interface) have revolutionized banking operations. For instance, UPI transactions surpassed ₹8 lakh crore in 2024, reflecting the significant shift towards digital payments.
    • Challenges:
      • Cybersecurity Risks: With the rise of digital banking, cybersecurity threats have become a major concern. Banks need to invest in robust security measures to protect against data breaches and fraud.
      • Digital Divide: There remains a digital divide, with certain sections of the population having limited access to digital banking services, which affects financial inclusion.

    Government Strategies to Address Banking Sector Challenges

    1. Addressing NPAs:

    • Insolvency and Bankruptcy Code (IBC):
      • Streamlined Resolution: The IBC framework, introduced in 2016, provides a structured process for the resolution of stressed assets. Recent high-profile cases, such as the resolution of Essar Steel and Alok Industries, demonstrate the effectiveness of the IBC in improving asset recovery rates.
    • Asset Quality Review (AQR):
      • Enhanced Supervision: The Reserve Bank of India (RBI) conducted an Asset Quality Review (AQR) to identify and address stressed assets. The review has led to better recognition of NPAs and strengthened the provisioning requirements for banks.
    • Bad Bank Concept:
      • Creation of the National Asset Reconstruction Company Ltd. (NARCL): The government has proposed the establishment of a bad bank to manage and resolve NPAs. The NARCL aims to acquire stressed assets from banks and facilitate their resolution.

    2. Recapitalization Efforts:

    • Capital Infusion Programs:
      • Government Support: The government’s capital infusion programs, such as the Recapitalization Plan and the Indradhanush Plan, have been critical in addressing the capital needs of PSBs. These measures ensure that banks maintain the required capital adequacy ratios and continue to support economic growth.
    • Privatization and Consolidation:
      • Bank Consolidation: The government has undertaken the consolidation of PSBs to create stronger and more viable entities. The merger of banks like Bank of Baroda, Dena Bank, and Vijaya Bank in 2019 is an example of this strategy.

    3. Promoting Digital Banking:

    • Digital Infrastructure Development:
      • National Payments Corporation of India (NPCI): The NPCI has developed and maintained crucial digital payment platforms such as UPI and Bharat QR, which facilitate seamless and secure transactions. The growth of digital payment systems has enhanced financial inclusion and accessibility.
    • Financial Literacy and Inclusion:
      • Digital Literacy Programs: The government and banks are investing in financial literacy programs to educate customers about digital banking services. Initiatives like the Pradhan Mantri Jan Dhan Yojana (PMJDY) aim to increase financial inclusion and digital adoption.
    • Cybersecurity Measures:
      • Enhanced Security Frameworks: The RBI and banks are investing in advanced cybersecurity measures to protect against digital threats. The implementation of the Cyber Security Framework and the establishment of the Indian Computer Emergency Response Team (CERT-IN) are examples of these efforts.

    Recent Examples and Outcomes:

    • Essar Steel Resolution: The resolution of Essar Steel under the IBC resulted in the recovery of ₹42,000 crore, demonstrating the effectiveness of the insolvency framework in resolving stressed assets.
    • Bank Recapitalization: The infusion of ₹70,000 crore into PSBs in 2023 helped strengthen their financial position and supported lending activities, contributing to economic recovery.
    • Digital Banking Growth: The significant increase in UPI transactions and the widespread adoption of digital payment methods highlight the successful implementation of digital banking initiatives.

    Conclusion

    The Indian banking sector faces several challenges, including high NPAs, the need for recapitalization, and the growing importance of digital banking. The government has implemented various strategies to address these challenges, such as recapitalization programs, the introduction of the IBC, and the promotion of digital banking. These efforts aim to enhance the stability and profitability of the banking sector, ensuring its resilience and capability to support economic growth.

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varun kumar Parkala
  • -1
varun kumar ParkalaBegginer
Asked: July 19, 2024In: , , , , , , , , , , , , , , , ,
  • -1

What is mean by inflation.In which do you think it is growing and why ?

  1. Vaidika Punna
    Vaidika Punna Begginer

    Inflation is nothing but general increase of lives in the products whichever we buy, which leads to decrease in purchase power. We measure inflation with: Consumer Price Index(CPI):average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. ProdRead more

    Inflation is nothing but general increase of lives in the products whichever we buy, which leads to decrease in purchase power.
    We measure inflation with:

    Consumer Price Index(CPI):average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

    Producer Price Index (PPI): Measures the average change over time in the selling prices received by domestic producers for their output.

    Several Factors affecting Inflation are:

    1. Demand pull inflation: It occurs when the demand for that product increases i.e., lesser the goods the more it costs.
    2. Built-In Inflation: When workers demand higher wages and, in response, companies increase the prices of their products to cover higher wage costs.
    3. Global Factors: International events, such as geopolitical instability or changes in global supply chains, can impact inflation. For example, the COVID-19 pandemic disrupted supply chains worldwide, leading to increased prices for many goods and services.
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Shivanjali S
  • 0
Shivanjali SBegginer
Asked: July 21, 2024In:
  • 0

entrepreneurshipfinancial risknew business
  1. Srabanti Acharya
    Srabanti Acharya Begginer

    Entrepreneurs can effectively manage financial risks by implementing several strategies: Develop a Capital Strategy: Ensure sufficient cash flow by planning for an 18-24 month capital runway to attract investors and avoid bankruptcy. Conduct Risk Assessment: Measure and weigh risks before taking theRead more

    Entrepreneurs can effectively manage financial risks by implementing several strategies:

    Develop a Capital Strategy: Ensure sufficient cash flow by planning for an 18-24 month capital runway to attract investors and avoid bankruptcy.

    Conduct Risk Assessment: Measure and weigh risks before taking them, ensuring that potential losses are manageable.

    Utilize Insurance: Protect against liabilities and operational risks by securing appropriate insurance coverage.

    Monitor Financial Health: Regularly assess accounts receivable and set credit standards to minimize outstanding balances and avoid bad debts.

    Professional Financial Management: Consider hiring or outsourcing financial expertise early to maintain accurate reporting and forecasting

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Akashdeep Singh
  • 1
Akashdeep SinghBegginer
Asked: July 9, 2024In:
  • 1

Discuss the role of financial markets in promoting economic development and stability. Illustrate with examples how effective financial market regulation can contribute to achieving these objectives.

  1. Shraddha Sharma
    Shraddha Sharma Begginer

    Financial Markets play an important role in the economic development of any country. In border terms it can be considered as a place where securities trading occurs like stock market, bond market, forex market etc. It makes it easy for buyers and sellers to trade their financial holdings. Types of FRead more

    Financial Markets play an important role in the economic development of any country. In border terms it can be considered as a place where securities trading occurs like stock market, bond market, forex market etc. It makes it easy for buyers and sellers to trade their financial holdings.

    Types of Financial Markets are as follows:

    1. Stock Markets
    2. Bond Markets
    3. Money Markets
    4. Derivatives Markets
    5. Forex Markets

    Role of Financial Markets

    1. Capital Formation: Financial markets are crucial for mobilizing and allocating capital efficiently. By providing a platform for companies to issue shares and bonds, financial markets enable businesses to raise funds for expansion and innovation.
    2. Liquidity Provisions: Financial markets offer liquidity, allowing investors to buy and sell securities easily. This liquidity encourages investment, as investors know they can quickly convert their investments into cash if needed.
    3. Risk Management: Financial markets provide instruments like derivatives, options, and futures, which help businesses and investors manage and hedge against risks such as price volatility, interest rate changes, and currency fluctuations. 
    4. Money Securities: Financial markets are vital for the price discovery process, where the prices of securities are determined through supply and demand dynamics. This information is crucial for investors, businesses, and policymakers to make informed decisions. For example, the bond market helps in determining the interest rates, which influence borrowing costs for individuals and businesses.
    5. Allocation of Resources:  Financial markets facilitate the efficient allocation of resources by directing funds to their most productive uses. By channeling savings into investments, financial markets help in the optimal distribution of resources, leading to economic growth. 
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MEHNAAZ HAWA
  • 0
MEHNAAZ HAWABegginer
Asked: July 21, 2024In: , , , , , , , ,
  • 0

Elaborate on the comparison between Foreign Exchange Regulation Act and Foreign Exchange Management Act.  What are the major differences between the two Acts and suggest changes, if any, that are required.

femaferaforeign exchangeforeign lawsinternational financesmanagement of foreign exchangeregulation of foreign income
  1. Ritika Sharma.1
    Ritika Sharma.1 Begginer

    Here are some major differences between the Foreign Exchange Regulation Act and the Foreign Exchange Management Act: FERA and FEMA manage India's foreign currency and payments differently. In 1973, the Indian Parliament passed FERA, which took effect on January 1, 1974, to manage and save foreign cuRead more

    Here are some major differences between the Foreign Exchange Regulation Act and the Foreign Exchange Management Act:

    1. FERA and FEMA manage India’s foreign currency and payments differently. In 1973, the Indian Parliament passed FERA, which took effect on January 1, 1974, to manage and save foreign currency at a time of low reserves. FEMA replaced the restricted FERA framework on June 1, 2000, after Parliament authorized it in 1999 to facilitate orderly foreign currency management.
    2. FERA’s rigorous restrictions reflected the economy and focused on foreign currency management and conservation. A complex 81-section law defined “Authorized persons” carefully and based residence status on citizenship. FERA violations were criminal crimes that carried the possibility of jail and barred legal representation. In addition, infractions were non-compoundable and could not be addressed outside of court.
    3. However, FEMA’s free and flexible regulation reflected India’s 1990s liberalization ambitions. With just 49 parts, FEMA’s structure is simpler and defines “Authorized persons,” including banks. The past six months of presence in India determines FEMA resident status, not citizenship. FEMA violations are civil infractions punishable by fines, but failure to pay may lead to incarceration. In contrast to FERA, breaches may be settled and the accused can be represented. FEMA added specific directors and courts to streamline appeals compared to FERA Supreme Court appeals.
    4. FERA’s cautious approach needed RBI approval for FX transactions, limiting operational flexibility. This regulation was repealed by FEMA, making currency transactions easier. FEMA also included information technology requirements to support a modernizing economy, unlike FERA. FERA to FEMA represents India’s transformation from a controlled to a liberalized and growth-oriented economy.
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Anonymous
  • 0
Anonymous
Asked: July 19, 2024In: , , , , , , , , , , , , , , , , , , , , , , , ,
  • 0

What are the key psychological factors that influence individual investors’ decisions in the stock market, and how do these factors impact market volatility and stock prices?

stock market
  1. Mahima Singh
    Mahima Singh Begginer

    Individual investors’ decisions in the stock market are heavily influenced by several psychological factors. One major factor is herd behavior, where investors follow the actions of others, leading to rapid price increases or drops based on perceived trends rather than fundamental analysis. This canRead more

    Individual investors’ decisions in the stock market are heavily influenced by several psychological factors. One major factor is herd behavior, where investors follow the actions of others, leading to rapid price increases or drops based on perceived trends rather than fundamental analysis. This can cause significant market volatility as prices swing sharply with shifts in sentiment.
    Overconfidence is another factor. Investors often overestimate their knowledge and ability to predict market movements, leading to excessive trading and risk-taking. This behavior can inflate stock prices beyond their intrinsic value, eventually causing corrections when reality sets in.
    Loss aversion describes investors’ tendency to fear losses more than they value gains. This can lead to panic selling during market downturns, exacerbating declines and increasing volatility. Conversely, greed can drive investors to hold onto stocks too long, hoping for higher returns, which can result in sharp sell-offs when the market turns.
    Anchoring is when investors rely too heavily on the initial piece of information they encounter, such as a stock’s past performance, ignoring new data that might suggest a different direction.
    These psychological factors contribute to unpredictable market behavior, making stock prices more volatile and sometimes misaligned with the underlying economic fundamentals. Understanding these factors is crucial for both investors and market analysts to better navigate the complexities of the stock market.

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Rudransh Nayak
  • 1
Rudransh NayakBegginer
Asked: July 26, 2024In:
  • 1

Examine how a recession affects the financial markets, paying particular attention to investor mood, stock market volatility, and the performance of different asset classes (e.g., equities, bonds, commodities). Examine the potential long-term ramifications for investor behavior and market stability, as ...

  1. Rubi Gautam
    Rubi Gautam Begginer

    A recession is a period of economic decline, typically defined as a decline in gross domestic product (GDP) for two or more consecutive quarters. During a recession, the financial markets can be significantly impacted, affecting investor mood, stock market volatility, and the performance of differenRead more

    A recession is a period of economic decline, typically defined as a decline in gross domestic product (GDP) for two or more consecutive quarters. During a recession, the financial markets can be significantly impacted, affecting investor mood, stock market volatility, and the performance of different asset classes.

    Investor Mood:

    1. Fear and uncertainty: A recession can lead to increased anxiety and fear among investors, causing them to become more risk-averse and hesitant to invest. This can result in a decrease in consumer spending and business investment.
    2. Loss of confidence: As the economy slows down, investors may lose confidence in the market, leading to reduced investment activity and a decrease in asset prices.
    3. Increased risk aversion: Investors may shift their portfolios towards safer assets, such as bonds and cash, and reduce their exposure to riskier assets like stocks.

    Stock Market Volatility:

    1. Increased volatility: Recessionary periods are often characterized by high levels of stock market volatility, as investors respond to changing economic conditions and uncertainty.
    2. Market corrections: The stock market may experience significant corrections or even bear markets, as investors adjust their expectations and prices reflect the new economic reality.
    3. Increased correlation: During a recession, stock prices tend to become more correlated, meaning that individual stock prices move in tandem with the broader market.

    Performance of Different Asset Classes:

    1. Equities: Stock prices tend to decline during recessions as companies’ earnings and revenues decrease. The S&P 500 index has historically dropped by around 30% during recessions.
    2. Bonds: Government bond prices tend to rise during recessions as investors seek safer assets and yields decline. High-yield bonds may experience increased defaults and spreads widen.
    3. Commodities: Commodity prices may decline during recessions as demand decreases and supply increases.
    4. Currencies: The value of a country’s currency can fluctuate significantly during a recession, depending on the severity of the economic downturn and the effectiveness of monetary policy.
    5. Real estate: Real estate values may decline during recessions as demand decreases and supply increases.

    Asset Class Performance During Recent Recessions:

    • 2001 recession: The S&P 500 fell by around 13%, while the US 10-year Treasury yield declined from around 6% to around 4%.
    • 2008 global financial crisis: The S&P 500 fell by around 38%, while the US 10-year Treasury yield rose from around 3% to around 3.5%.
    • 2020 COVID-19 recession: The S&P 500 fell by around 34%, while the US 10-year Treasury yield declined from around 1.7% to around 0.5%
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