Economics has been one of the most interesting practical subjects of study in most times, with its topics grabbing interest for most of the finance and commerce and economics student. One such topic of interest has been the concept of “crowding out.”

Imagine a situation- ‘The government spending during a period of time has increased beyond expectations, or its revenue through taxes and other modes has decreased, thus creating a deficit. During such situations, the government in need for more funds to carry on the economic activities and for financing the deficit so occurred, starts borrowing funds. Due to this increase in demand for borrowings, the interest rates start to increase. This increase in interest rates, makes borrowing expensive for private entities, thus thereby reducing the investments by the private players. Thus, this overall impact of increase in government borrowing that reduces investment is referred to as “crowding out of investments”.

Usually economists use the term ‘crowding out’ denoting the increase in government’s use of resources and finances to cover up their deficit, which could otherwise have been used by the private investors, for investment. The extent to which crowding out takes place is also determined by the economic situation prevailing in the country. By this we mean whether the economy is operating at a full employment situation or below full employment situation.

If increased borrowing leads to higher interest rates by creating a greater demand for money and loanable funds and hence a higher “price”(ceteris paribus order), the private sector, that is sensitive to interest rates, will certainly reduce their investment as they would now get lower rate of return from such investment. Thus it is this investment which is said to be crowded out.

This is something which can also be referred to as that- an adoption of expansionary fiscal policy which leads to a reduction in government spending.

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In finance, options are a kind of contract or we must say a derivatives contract by nature. It is the kind of contract which gives the buyer or the owner the right, but not the obligation, to buy or sell any underlying asset at a predetermined price and on or before a specified date, respectively. Unlike futures contract, which makes it an obligation to buy or sell the asset, options gives the buyer or seller the right to buy or sell, but no rigid obligation to do so.

If the buyer chooses to exercise his right then the seller comes under the obligation to fulfil the transaction. In option contracts, the buyer or seller do not buy or sell the underlying asset, instead they buy the right to buy or sell the asset, that is, rather than getting into the obligation to make the transaction they just buy the right to do so until the expiration period. Since the buyer has an upper hand in these kinds of contracts, he has to compensate the seller for it, and he does so by paying the seller a premium.

Two terms to understand now-

• Call option- An option which conveys to the owner the right to buy the underlying asset at a specified price and until the specified period, is known as the call option.
• Put option- An option which conveys the right of the owner to sell something at a specified price and until the specified period, is known as the put option.

Since options contracts are kind of derivatives contracts, they are also of similar two types-

• Exchange traded options- These are the ones, the trade of which happens when the transaction goes through an exchange. The terms of this contracts are fixed and a standardized procedure is followed
• Over the counter options- These are the ones, which are traded privately among the parties, and the transaction not necessarily needs to go through an exchange. The terms of contract can be altered to some extent on mutual agreement. Generally, one of the parties involved in it is a well-capitalized institution.

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A derivatives market has always been a daunting one! Whenever we come across this term, this whole thing just boggles our mind!! So this is a small try to help understand the core basics of derivatives market.

Firstly, what is a derivative? A derivative is nothing but a contract between two or more parties. It is a kind of financial instrument which does not have a value of its own, but which derives its value from the assets underlying in it. The value of the derivative is derived from the fluctuations in the prices of the underlying assets. The underlying asset could be shares, stocks, bonds, currencies, commodities, etc. Examples of derivatives contract are futures, forwards, options, etc. A derivative market, hence, is simply a market where exchange or trade of derivatives takes place.

Now the parties involved in derivatives are-

• Buyer of the derivative which is referred to as holding the “long position”– He owns the contract and his position becomes profitable if the value of the asset goes up.
• Seller of the derivative which is referred to as holding the “short position”– As he has already sold the contract, his position becomes profitable if the value of the underlying asset goes down.

So basically, while dealing in derivatives, the basic stress is upon transfer of ownership of asstes rather than the asset itself.

There are two types of derivatives market-

• Over the counter (OTC) Derivatives- These do not go through any exchange or intermediary, but are privately traded between two parties.
• Exchange Traded Derivatives- These are not traded privately, but are traded through specialized derivatives exchanges.

Derivates are a very important tool for risk management for both financial and non-financial institutions. These include three main role players- the Hedgers, the Arbitrageurs and the Speculators. Each assume different roles with respect to risk taking.

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Inflation– very often we come across this term especially in the news channels and the newspapers wherein economies are discussed on an everyday basis. What is inflation exactly? Inflation is simply the persistent increase in the overall price level. Now, two points are important over here-

• First, it is the increase in the overall price level and not merely the rise in prices of say one or two commodities being traded in the country.
• Second, the rise is for a long duration. If there is a rise in price level for one year and then the prices go down the next year, then this cannot be named as inflation. In order to be referred to as inflation, the rise in the overall price level must be over a longer duration.

There are basically two kinds of inflation-

Demand-pull inflation

This occurs when the demand for goods and services is greater than its supplies. This is a situation of excess demand, and in this situation the scarcity of goods gives rise to a controlling power with the producers and hence results in upward movement of the prices.

Supply side inflation

This type of inflation occurs from the supply side. This occurs when the rise in prices of goods is caused due to rise in the cost of production. There can be a rise in the cost of production because of the following reasons- 1) Higher wage rates; 2) Motive for higher profit margins; 3) Payment of higher taxes; 4) When there is a scarcity in the availability of the basic inputs required for production.

Anything upto a certain limit is desirable and so is inflation. Inflation upto a certain degree is a healthy sign for any economy. It leads to greater capital formation in the economy and nearly all sections benefit. But beyond the desirable level, inflation can be dangerous!

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Very often we have come across these phrases as- “bullish market” and “bearish market”, ever wondered what the logic behind these is!! When we refer to markets as a bull market or a bear market, we are actually referring to the market trends in the long run. This is not just restricted to stock markets, but any such other market trading in securities as bonds, currencies and commodities.

When the market is said to be bullish- we mean that the market is experiencing an upward trend. That is the prices of the securities is rising or is expected to rise over a long period of time. Whereas, when a market is said to be bearish- we mean that the market is experiencing a downward trend, the prices of the securities are lowering or are expected to lower further in the long run!

Bullish markets are often characterized with optimism, confidence among the investors and a positive vibe is spread all across the market, while exactly the opposite holds for a bearish market- characterized with pessimism about the market, low confidence among the investors and a sort of depression in the market. Bullish markets are experienced during period of inflation or growth, whereas bearish markets are basically observed during periods of recession.

Well, over here we still have one question unanswered! The question is that as to why are the markets referred to as being BULLish or BEARish? The answer is that markets are described as being a ‘bull’ or a ‘bear’ from the way they attack their rivals. A bull attacks by thrusting its horns up into the air while a bear swipes its paws down. These actions are metaphors for the movement of a market. When an upward trend, it’s a bull market; and when a downward trend, it’s a bear market.

At the time of investing, the basic idea to be kept in mind is to buy low and sell high in order to generate greater profits, this means, buy during a bear market and sell during a bull market!

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Before discussing as to what hedge funds are, it is important that we know what hedging is. Hedging is actually the practice of reducing risk and this is what is the main purpose of hedge funds- Reduction of risk. Hedge funds are regarded as one of the good investment alternatives that can take the form of both long and short term in the market and invest in almost any opportunity in any market where it is able to measure considerable amount of gains at reduced level of risk. The primary goal of most hedge funds is to reduce volatility and risk while trying to preserve capital and generate positive return in any market condition.

A hedge fund is a legal business entity and it is often set-up as a limited partnership or a limited liability partnership. Thus, it is a privately-owned company which pools in investors’ money and reinvest it into various kinds of financial instruments. It functions with the aim to do better than the market. The investors in hedge funds are limited to the elite class ones only like some institutional investors or individual investors with large possession of assets, since the minimum investment required by it is pretty large.

Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year, this time is known as the lock-up period.

These were initially devised in the US in 1949 and now form a key part of both institutional and private client portfolios. The basic features of Hedge funds are-

• Hedge funds are carried on with providing absolute returns
• Most hedge funds are managed by experienced investment professionals.
• Hedge funds vary enormously in terms of investment returns, volatility and risk.
• Hedge funds have enough flexibility to choose between long and short side of various financial instruments.
• Hedge fund managers trade across a variety of markets and exchanges, investing in a diverse section of financial instruments including equities, bonds, currencies and derivatives.

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As the name suggests, futures contract definitely has to do something with the future! A futures contract can be explained by the following point-

• It is a contract between two parties for the purchase or sale of a specified asset or commodity of a standardized quantity and consistent quality;
• With the delivery of the asset and payment in return to occur on a certain future date but for a price which is agreed upon today.
• The one agreeing to buy the asset specified in the future is the ‘buyer’ of the contract;
• The one agreeing to sell the asset specified in the future is the ‘seller’ of the contract;
• The exchange is an authorised one since it takes place through the ‘futures exchange’.
• Futures exchange is an institute which authorizes a futures contract and acts as an intermediary between the buyer and the seller of the contract so as to strike a deal on the price and the date involved in the contract.

But now there must be doubt- Will either of the parties not bear the risk on predetermining the price since the prices of the asset would keep on fluctuating? Well the answer to it is Yes (but to a certain extent) and No. The reason for No is that there is a process called ‘marking to market’ to overcome this problem. In marking to market, the exchange requires that both the parties put up an initial amount of cash with it as the margin. When due to regular fluctuations in the market, there would be a chance of one party suffering due to it, then the same amount is transferred from the other’s party account to it. Hence this helps in prevention of the risk involved. Hence on the delivery date, the amount to be exchanged would not be the specified price in the contract, but it would be the spot value, since any gain or loss would have been previously settled by marking to market.

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We all must have heard about mutual funds. Of course, why won’t we! It has been one of the most trending ways of investing your money! But is that it? Is mutual fund just another investment option that investors get while investing their money!! No it isn’t the complete case.

Mutual funds are not just an investment option for the investor; instead, mutual fund is an institution which collects money from a large number of investors and pools it together and further invests the money so collected in different securities such as shares, stocks, bonds, etc. Mutual funds are managed by institute called Asset Management Company (AMC) and the regulatory body is Securities and Exchange Board of India (SEBI).

Mutual funds are one of the most opportunistic modes of investing your money. Instead of just depositing your money in a savings bank account and getting fixed interest every year, mutual funds help in diversification of the investment of funds. It is less risky as it has the option of being converted into liquid cash and also that the owner of mutual funds can sell their securities at any point of time they want. Also that when a mutual fund trust invests the money it enjoys economies of scale which would not have been enjoyed by any individual investor for the same security. Also mutual funds when handled by professionals, the investment decisions are taken under professional expertise, which enhances reliability.

Mutual funds though may seem to be very attractive for investors; it requires huge cost for it to run. The running of a mutual fund, start from its creation is an expensive deal. Also, it is not necessary that the mutual fund will be a profitable move for the investors; Many times the failure of mutual funds has been evidently observed.

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‘Competition’, the word we all are pretty much accustomed to these days. It is a kind of rivalry between two or more individuals or joint entities usual for the acquisition of something and it is characterized by a winner and a loser. It has become the soul of all our endeavours in our lives. Starting from the school where we competed against our mates for better scores; colleges where we competed for better scores and better placements; work life where we competed  against our peers for promotion; businesses where we competed against other businesses for more profitability. These are just a few examples, we experience a lot more everyday in our day to day activities.

Now a days, it has assumed such an immense role in everyone’s lives that people tend to forget who they are actually competing against. It has distanced relationships. There is competition in families, between friends, between peers. Competition in business spheres has adopted “no mercy” theory. It has been observed that competitions are given priority over people and relationships. In order to win the competition people tend to go to any extent.

Now, when the it is healthy, there are various benefits as well. It enhances the scope of improvement and betterment of any activity being undertaken.  Among business houses, it enables innovation in its products in order to get better than the competitors. Till there is a healthy competition among peers and mates, it always leads to improvement in the self.

The core value of competition is that it must be till a desired level. When there starts getting animosity and ill feeling in a competition, it does not remain healthy. An unhealthy competition has its share of harm on us. It leads to stress and constant doubting on each other. Thus, more of HEALTHY COMPETITION!

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The Andaman and Nicobar Islands, stretching in an area of 700 kilometres below the Bay of Bengal is one of the most strategically important locations of India. One of the Union Territories of the nation, its potential had always been considered as unexploited to its full degree until Narendra Modi stuck his eyes on this part of the country and aimed for its upliftment and overall expansion.

The first area where the expansion was aimed at was the Tourism Industry. Andaman and Nicobar Island are gifted with majestic scenic beauty and various natural tourist attractions. These inherent features and its exotic location give it the potential to attract a large number of tourists towards the archipelago.

The next area envisaged in this step is the expansion of trades in the islands. Apart from tourism that will enhance its credibility in terms of encouraging trade, Mr. Modi aims at expanding the industrial development in the archipelago. Due to abundant resources available in these islands, it would lead to proper utilisation of the available resources and thus encourage and promote trade.

The final area targeted through this initiative by The Prime Minister is that of development of the military base. Narendra Modi aims at expanding the military base of the Andaman and Nicobar Islands. Lying on a busy shipping route between mainland India and south-east Asia, they are seen as ideal for extending India’s economic and military reach.

This archipelago is mainly characterized by the tribe- Jarawas, with around being 400 in number and also the inhabitants of the islands for 55000 years. The basic line of thought involved in this step is to mainstream them so that they enjoy the fruits of the development. But, this has always been observed that, with the clash between the modern world and the tribal world, the tribals have suffered due to encroachment in their sphere of life.

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