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| Wednesday, May 03, 2006 |
| Iday's notes |
Devaluation:
This is the term referring to the decrease in the currency value as a country w.r.t foreign Exchange or Gold. This started from the olden days when money itself was just pieces of gold or silver. When those rules devaluated their currency, they wud release newer coins of the same denomination, but the coins will be of lesser weight. The value of the rupee is defined as against the value of gold. Say x mg of gold is Rs.10. When the money gets devaluated, this x is decreased (which means that the value of gold increases). People buy dollars, when they expect the money to devaluated, and sell them after this - thus making profit out of this. The opposite of this is revaluation, where the money strengthens.
Capital Control:
CC restricts the free movement of capital. Expanding global economy and liberalized financial systems of countries (such as complete currency convertibility) will expose the country to autonomous flow of funds. So CC says all this must be monitored and examined.
Inflation:
This is a fall in the real or apparent value of the currency of a nation. A classic example is the comparison of prices of goods or services. In raw terms, inflation is the drop in the purchasing power of money. Another example is when the govt releases money into the economy, without having the necessary reserves. So the 'x' we spoke abt above naturally decreases and the value of the money decreases.
Inflation is within one economy and devaluation is the result of comparison between 2 (or more economies)
Deflation = increase in the purchasing power of money (opposite of inflation)
Disinflation = slowing the rate of inflation
Reflation = A corrective inflation after a deflation
Hyperinflation = inflation gone out of hands
Monetary Policy:
This is the BIG game the govt and/or central bank plays to keep all the economic parameters under check and stabilize the economy. There are lot of parinvolved involed like inflation, exchange rate of currency, providing employment, maintaining interest rates, ForEx etc etc.
Fiscal planning:
This is basically the budget and how the budget gets implemented. Things like taxation, issuance of bonds, treasury bills, borrowing money, tackling the fiscal deposit etc. Supposedly the govt also plays around with the value of the money and rises fiscal funds thru this. This is called seignorage.
Central bank:
Our RBI, responsible for the monetary policy of the country by maintaining the stability of the national currency economy, controlling loan interest rates, work with banks to enforce monetary plans, monitoring and controlling banking operations etc. Found that our RBI is an independent body - the working of which cannot be interfered by the central govt.
Wiki jus led me into a maze. Looks like i must read a lot more. It is interesting nevertheless!!! Will keep posting stuff on this message as and when i read up. |
posted by Iday @ 11:52 PM   |
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