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Roadmap for Answer Writing Introduction Context Setting Introduce the typical economic progression of countries: agriculture → industry → services. Mention India’s unique shift directly from agriculture to services, referred to as “premature deindustrialization.” Thesis Statement State the focus of the response: to explore reasons for the ...
Development Finance Institutions (DFIs) play a crucial role as middlemen in directing the long-term capital needed for infrastructure and achieving faster economic growth. Talk about it.
DFIs are large global institutions that play a vital role in financing and channelling long-term finance required for infrastructure and development projects and to all those entities which banks and capital markets do not adequately serve. Objectives & Key Features Primarily, they aim to mobiliRead more
DFIs are large global institutions that play a vital role in financing and channelling long-term finance required for infrastructure and development projects and to all those entities which banks and capital markets do not adequately serve.
Objectives & Key Features
Major DFIs
Post-Independence, various DFIs were incorporated which included IFCI (Industrial Finance Corporation of India ) the 1st DFI in India in 1948, ICICI (Industrial Credit and Investment Corporation of India Limited) in 1955, IDBI (Industrial Development Bank of India) in 1964, IDBI (Industrial Development Bank of India) in 1964, IRCI (Industrial Reconstruction Corporation of India) in 1971, SIDBI (Small Industries development bank of India) in 1989, EXIM Bank (Export-Import Bank) in 1982, NABARD (National Bank for agriculture and rural development) in 1982, NHB (National Housing Bank) in 1988.
Present Scenario
The role of DFIs was curtailed after 1991 LPG reforms, on the recommendations of the Narasimham Committee, due to rising NPAs (Non-Performing Assets). The merger of two crucial DFIs (ICICI and IDBI) into Universal Commercial Banks eventually led to the decline of the DFI in India.
Recently due to covid-19 induced economic recession and the presence of fewer institutions catering to this sector, the government under the Union Budget 2021 aimed to set up the National Bank for Financing Infrastructure and Development (NaBFID) which will be India’s first DFI to be established post -1991 reforms.
See lessDiscuss 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.
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:
Role of Financial Markets
Same as question.
Determining the appropriate risk appetite for investing depends on various factors, including individual financial goals, time horizon, income stability, and tolerance for potential losses. Here are some considerations to help gauge a common man's risk appetite: 1.Financial Goals: Consider your inveRead more
Determining the appropriate risk appetite for investing depends on various factors, including individual financial goals, time horizon, income stability, and tolerance for potential losses. Here are some considerations to help gauge a common man’s risk appetite:
Consider your investment objectives, such as saving for retirement, funding education, or achieving financial independence. Short-term goals may tolerate less risk compared to long-term goals.
Determine how long you intend to invest before needing access to your money. Longer time horizons generally allow for more aggressive investment strategies because there is more time to recover from market fluctuations.
Assess your comfort level with potential investment losses. Are you willing and able to withstand short-term fluctuations in the value of your investments? A conservative risk tolerance might prioritize capital preservation, while an aggressive risk tolerance may seek higher returns despite higher volatility.
Evaluate your current income and financial stability. Those with stable income streams and sufficient emergency savings may have a higher risk appetite compared to those with irregular income or minimal savings.
Consider your understanding of investment products and markets. Novice investors may prefer lower-risk options or seek advice from financial professionals, whereas experienced investors may be comfortable with more complex investments.
Diversifying your investment portfolio across different asset classes (stocks, bonds, real estate, etc.) can mitigate risk. Assessing your risk appetite involves determining how much of your portfolio you allocate to each asset class based on your goals and tolerance for risk.
Emotions play a significant role in investing. Understand your emotional responses to market volatility and fluctuations. Avoid making impulsive decisions based on fear or greed, which can lead to poor investment outcomes.
In summary, there is no one-size-fits-all approach to determining risk appetite in investing. It varies based on individual circumstances and preferences. It’s essential to carefully assess your financial situation, goals, and comfort level with risk before making investment decisions. Consulting with a financial advisor can provide personalized guidance and help align your investment strategy with your risk tolerance and long-term objectives.
See lessWe hear many scams running on telegram channels. For example, a scam company calls people and tells them they will double their money and return it.
To tackle scams in the Indian stock market effectively, the government must implement robust regulatory measures and strengthen oversight mechanisms. This includes empowering regulatory bodies like SEBI with enhanced authority and resources to monitor market activities closely and enforce strict penRead more
To tackle scams in the Indian stock market effectively, the government must implement robust regulatory measures and strengthen oversight mechanisms. This includes empowering regulatory bodies like SEBI with enhanced authority and resources to monitor market activities closely and enforce strict penalties for fraudulent behavior. Educating and empowering investors, especially beginners, is crucial. The government should invest in educational campaigns and workshops to raise awareness about investment risks, spotting scams, and making informed decisions.
Transparency in corporate governance is essential. Implementing stringent disclosure requirements and ensuring companies adhere to ethical standards can prevent fraudulent practices. Additionally, promoting a culture of whistleblowing and protecting whistleblowers can encourage early detection and reporting of fraudulent activities.
Enhanced collaboration with financial institutions, media, and industry experts can provide valuable guidance and support to investors. Simplifying complex financial information and providing accessible resources can help individuals navigate the market safely. By fostering a trustworthy and transparent market environment, the government can promote investor confidence and ensure that the stock market serves as a reliable avenue for economic growth and wealth creation.
See lessWhat are the different types of finance markets
The financial market world can be broken down into two main categories based on how long investments are held: Money Markets: Think short-term! These markets deal with investments with maturities under a year, like government bills or certificates of deposit (CDs). They're ideal for parking your casRead more
The financial market world can be broken down into two main categories based on how long investments are held:
Money Markets: Think short-term! These markets deal with investments with maturities under a year, like government bills or certificates of deposit (CDs). They’re ideal for parking your cash and earning some interest before you need it.
Capital Markets: Here, investments have longer lifespans, like stocks or bonds. Stock markets allow you to own a piece of a company, hoping it grows in value. Bond markets let you lend money to governments or companies, earning interest in return.
Within Capital Markets, there are even more specialized areas:
Each market type plays a vital role – from helping businesses raise money to allowing individuals to invest and grow their wealth.
See lesshow we can create financial literacy in education sector.
The development of financial literacy in the academic sector is not a one-size-fits all solution but rather a combination of measures that starts from very early stages up to the highest levels of learning and uses various ways to capture students’ attention. The following are some strategies to helRead more
The development of financial literacy in the academic sector is not a one-size-fits all solution but rather a combination of measures that starts from very early stages up to the highest levels of learning and uses various ways to capture students’ attention. The following are some strategies to help you realize this:
Curriculum Integration
Introduce financial literacy topics into primary, secondary and higher education curricula. This may include teachings around budgeting, saving, investing, credit management and understanding financial products.
Cross-disciplinary Approach
Integrate financial literacy in subjects such as mathematics, social studies and economics to enable students to see the real world application and relevance of the subject.
Teacher Training and Resources
You can offer more training sessions and professional development courses to teachers so that they are well versed with knowledge and skills of teaching financial literacy effectively.
Teaching Materials:
Create and distribute new high-quality, age-appropriate teaching materials (e.g. textbooks, online resources, interactive programs).
Policy And Advocacy
Advocate for policies that mandate financial education in school curricula and provide funding for financial literacy programs,
Develop standardized assessments to evaluate students’ financial literacy and ensure consistent learning outcomes across different schools and regions.
See lessHow to better manage the emotional aspects of trading decisions?
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-
Trading offers its 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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Inflation significantly affects both purchasing power and savings, eroding the value of money over time. As prices for goods and services rise, the amount of items one can buy with a fixed sum decreases, effectively reducing purchasing power. This means consumers must spend more to maintain their stRead more
Inflation significantly affects both purchasing power and savings, eroding the value of money over time. As prices for goods and services rise, the amount of items one can buy with a fixed sum decreases, effectively reducing purchasing power. This means consumers must spend more to maintain their standard of living, potentially leading to financial strain for individuals and families.
Savings are particularly vulnerable to inflation’s effects. Money held in low-interest accounts or as cash loses value as inflation outpaces any modest gains. This can be especially detrimental for those relying on savings for retirement or future expenses, as their nest egg may not stretch as far as anticipated.
To combat inflation’s impact, individuals often seek higher-yielding investments or adjust their spending habits. However, this can lead to increased financial risk or a reduced quality of life. Businesses may also struggle with rising costs, potentially leading to price increases or reduced profit margins.
Governments and central banks attempt to manage inflation through monetary policy, but striking the right balance is challenging. While some inflation is considered normal in a growing economy, excessive inflation can lead to economic instability and decreased consumer confidence.
Understanding inflation’s impact is crucial for making informed financial decisions and planning for the future. By staying aware of economic trends and adjusting strategies accordingly, individuals can better protect their purchasing power and savings from inflation’s erosive effects.
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Capital markets are places where people and organizations with money to invest connect with those who need money to grow their businesses or fund projects. These markets include the stock market and the bond market. In the stock market, companies sell shares of their ownership to investors. WRead more
Capital markets are places where people and organizations with money to invest connect with those who need money to grow their businesses or fund projects. These markets include the stock market and the bond market.
In the stock market, companies sell shares of their ownership to investors. When a company first sells its shares, it’s called the primary market. After that, investors can buy and sell these shares among themselves in what’s called the secondary market.
In the bond market, companies or governments borrow money from investors and promise to pay it back with interest.
Capital markets help businesses get the money they need to grow and innovate. They also give investors a way to earn returns on their savings. These markets are important for the overall economy because they ensure money is directed to the most productive uses, helping to drive economic growth and stability. Regulatory bodies oversee capital markets to make sure they are fair and transparent, protecting investors and maintaining trust in the system.
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Model Answer Introduction Typically, countries transition from agriculture to industry before moving to services. However, India has experienced a direct shift from agriculture to services, a phenomenon referred to as "premature deindustrialization." This shift raises questions about the reasons behRead more
Model Answer
Introduction
Typically, countries transition from agriculture to industry before moving to services. However, India has experienced a direct shift from agriculture to services, a phenomenon referred to as “premature deindustrialization.” This shift raises questions about the reasons behind the robust growth of the services sector and whether India can achieve developed status without a strong industrial base.
Reasons for Growth of Services vs. Industry
Can India Become a Developed Country Without a Strong Industrial Base?
While India can achieve some level of development through its booming service sector, a robust industrial base is crucial for balanced and inclusive growth. A strong industrial sector can:
Conclusion
In conclusion, while India has experienced significant growth in the services sector, relying solely on this path could lead to unequal development. Establishing a strong industrial base is essential for fostering a balanced and inclusive economy, enabling India to emerge as a developed nation.
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