Living Diagonally In My Parallel World!

Todays (11th Jan 2010) Times Of India carry's a good article on gratuity. I always thought that gratuity was useless. In times such as todays when people change jobs frequently, Gratuity is one way to earn money for employees who stick around for more than five years. What is gratuity? Gratuity is governed by the Gratuity Act, 1972. It is a defined benefit plan. It is a lumpsum that is paid to the employee when he/she exits the company. It is mandatory for companies with more than 10 employees on their payrolls to give gratuity to an employee on resignation, retirement and termination of service. But this applies only to those employees who have completed five years continously in the same company. Which means if you leave after working for two years and rejoin after sometime and work for another three years, you will not get this benefit. Gratuity is non taxable for government employees but has a cap of Rs.10 lakhs for it to be non taxable for privately employed persons. The calcu...

I got this story from a forwarded email - Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for Rs.1000 each. The villagers, seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at Rs.1000 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at Rs.2000. This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further and people started going back to their farms. The offer increased to Rs.2500 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it! The man now announced that he would buy monkeys at Rs.5000! However, since he had to go to the city on some business, his assistant would now buy on behalf of him. In the absence of the man, the assistant told the villagers; "Look at all these monke...

(My view of the problem). Sugar prices have risen very high in the recent past. The share prices of some sugar companies are trading at all time highs. So what must have caused sugar to taste bitter? The government has admitted that there is a shortfall of 5-million-tonnes this year between India’s sugar demand and supply. So the wise men in the government debated on the pro’s and con’s of importing sugar. Then, the government asked STC, MMTC and PEC to import white sugar. But then importing sugar at international prices and selling them nationally at low prices didn’t make sense. Prices kept rising. In the meantime the sugar time bomb was ticking. The festival season is approaching followed by elections in Maharashtra. The commodity futures trading in sugar was banned in May with the intention of curbing high prices, so no one had a clue how high the prices would rise. The prices continued their upward journey. The next action from the government was to issue warning to “hoarders”. Th...

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The top 10 Oil producing countries (Source: Energy Information Administration, USA) Saudi Arabia The world's largest oil producer and exporter Saudi Arabia contributes 20,687 thousand barrels of oil per day to the world's oil basket. Being the largest producer it exports about 8,525 thousand barrels per day. The nation is also the world's 10th largest consumer of oil with consuming about 2,139 thousand barrels per day. Russia With 9,677 thousand barrels of oil produced per day the world's 2nd largest producer Russia is also the world's 4th biggest consumer of oil consuming about 2,811 thousand barrels of oil per day. Russia exports 6,866 thousand barrels of oil per day as the world's 2nd largest net exporter. USA The US produces about 8,330 thousand barrels of oil per day. It also is the world's top oil consumer and importer with the consumption of 20,687 thousand barrels of oil per day and imports accounting around 12,357 thousand barrels of oil per day. Ir...

Following beautiful story tries to answer the question on economic bubble. Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around. 1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar. 2) B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar. * The net asset of the country now = 3 dollars. 3) Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars. *A has a loan to C of 1 dollar, so his net asset is 1 dollar. * B sold his land and got 2 dollars, so his net asset is 2 dollars. * C owned the piece of land worth 2 doll...

After coming to Calgary, I needed some information on NRI and NRO accounts. Lots of people kept telling lotsa things. ultimately it was the old trusted Economic Times, Mumbai that gave some easy to understand and good information The government gives non-resident Indians (NRI) the opportunity to open rupee dominated accounts in India for repatriating funds. The most popular among these are the NRE and NRO accounts. A NRE ( Non-Resident External ) account gives an individual the opportunity to deposit money earned from abroad. It can be either in the form of a savings or current or term deposit account. Apart from the account holder, a resident can also operate the NRE account for making local payments as long as he has the power of attorney. A NRO ( Non-Resident Ordinary ) account gives one the privilege of depositing overseas earnings as well as Indian earnings. An NRO account can be in the form of saving, current and term deposit account. However, one can have a resident of India...

An excellent article in the Times of India of 10th January 2009 giving fundamental information on Balance Sheet and Profit and Loss statements. Balance Sheet A company’s balance sheet is essentially a statement of its wealth (assets) and what it owes to others (liabilities) at a particular point in time. The assets could be fixed assets like land, buildings, plant and machinery. They could be movables like cars or computers. They could also be liquid assets in the form of cash reserves or receivable payments due to the company from those it has sold goods to, for instance, or repayments on loans given. Liabilities are anything the company has to pay to others. Thus, they would include payments due to its suppliers. Loans taken from others as well as interest due on those loans would also be part of the liabilities. What is owed to the shareholders would also fall in this category. However, balance sheets present this information not explicitly under the heads assets and liabiliti...

Interestingly, just as I had completed writing this blog I got a mail with two questions - What is the likely impact of the low oil prices on the Oil sands companies? Which will lead to another question . What can we all do, in our own small ways in IT , to help reduce impact? So I have added a paragraph trying to mention how IT can contribute. Impact of Low Oil Prices Generally low oil prices means less expenses and lower inflation. But how would it impact various countries? I have also tried to find the answer to this question. I was trying to co-relate the impact it would have on the Canadian dollar. When I landed in Calgary the CAD was trading at Rs.40.65 , now it is Rs.38.34. From what I have been reading in the media the oil price is expected to dip to USD35 by the last week of December '08, but is expected to recover to upto USD50 in February. Now that the oil prices have dipped there are bound to be some who will benefit and some losers. The ones to benefit- Based on the da...

Statutory Liquidity Ratio (SLR) EVERY bank in India has to maintain at the close of business every day, a minimum proportion of their net demand and time liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). In simple words, it is the percentage of total deposits banks have to invest in government bonds and other approved securities. A SLR bond also qualifies for the portfolio maintained by banks to meet the liquidity requirement. RBI in November cut the SLR for banks by one percentage point and it now stands at 24%. What is the difference between SLR and CRR? What SLR does is it restricts the bank’s leverage in pumping more money into the economy. On the other hand, CRR, or cash reserve ratio, is the portion of deposits that the banks have to maintain with the RBI. Higher the ratio, the lower is the amount that banks will be able to use for len...

The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents the total value of all goods and services produced over a specific time period. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 1%, this is thought to mean that the economy has grown by 1% over the last year. Calculating the GDP is pretty complicated but on a very simplistic level calculation can be done in one of two ways: Either by adding up what everyone earned in a year (income approach), or By adding up what everyone spent (expenditure method). Logically, both measures should arrive at roughly the same total. The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total compensation to employees, gross profits for incorporated and non incorporated firms, and taxes less any subsidies. The expenditure method is the more common approach and is calculated...

What is Repo Rate? The repo rate is simply the annualised interest rate at which banks borrow money from the Reserve Bank of India (RBI) over a short term. This is generally seen as a way of tiding over a short-term liquidity crunch that is experienced by banks. Repo technically stands for the word repurchase agreement . Most banks generally have a certain amount of government bonds or securities in their possession. When banks are in need for money they borrow money from the RBI using these government bonds or securities as a collateral. There is however the assurance that the bank will recover these later when the borrowed money is returned. The cost of this transaction takes the form of the repo rate. The repo rate is dependent on factors such as the credit worthiness of the borrower, how liquid the collateral is and the rates of other money market instruments. What is reverse repo? The word reverse repo generally accompanies most definitions of repo and is generally considered t...

What Is Short-Selling? There are two kinds of short-selling. In the spot market, Party A will borrow shares from Party B and sell them in the market. ‘A’ will then buy an equivalent number of shares and return them — known as giving delivery— to ‘B’ How Do They Make Money? Let’s say Party A borrows shares when they are quoting at Rs 130 each and sells them at Rs 120. Suppose the scrip price drops to Rs 80, ‘A’ can now buy back the shares at that level. He returns the shares to ‘B’ along with a lender’s fee, and pockets the difference. But he runs the risk of incurring a loss if the share price rises instead of falling Futures Market Party A sells shares to Party B without owning the share. This is known as naked short-selling. ‘A’ simply has to deposit a margin, which could range from 8%-30% of the share price. Later, he can buy the share and ‘square the position’ before the last Thursday of the month. He can roll over his position for three months. Short-selling thus puts pressure on ...

(This blog is purely for myself and the information appearing may be incorrect. Do not risk using this as reference material) Volatility index or VIX is also called the "fear index" or "risk index". It is an indicator that captures the level of fear in the capital markets and help investors understand market risks better and take decisions accordingly. The higher the VIX the more risky it would be for investors. VIX was first "invented" by the Chicago Board Options Exchange (CBOE) in 1993. Nasdaq has its own called "VXN" which tracks the Nasdaq and Dow has one called "VXD" that tracks the Dow Jones Industrial Average. The implied volatility, as captured by the volatility index, is not about the size of the price swings, but rather the implied risks associated with the stock markets. The implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish marke...

An informative article from the Economic Times dt 19th October 2008 by Shobhana Chadha The present banking system is called a “ fractional reserve banking system ”, as the banks are required to keep fraction of their deposit liabilities in the form of liquid cash with the central bank for ensuring safety and liquidity of deposits. The Cash Reserve Ratio (CRR) refers to this liquid cash that banks have to maintain with the Reserve Bank of India (RBI) as a certain percentage of their demand and time liabilities. For example if the CRR is 10% then a bank with net demand and time deposits of Rs 1,00,000 will have to deposit Rs 10,000 with the RBI as liquid cash. How is CRR used as a tool of credit control? CRR was introduced in 1950 primarily as a measure to ensure safety and liquidity of bank deposits. However, over the years it has become an important and effective tool for directly regulating the lending capacity of banks and controlling the money supply in the economy. When the RBI f...

This article based on a number of similar such articles floating on the internet. What is a sub-prime loan? In the US, borrowers are rated either as ‘prime’—indicating that they have good credit ratings based on their track record—or as ‘sub-prime’, meaning their track record in repaying loans has been below par. Loans given to subprime borrowers—which banks would normally be reluctant to—are categorised as subprime loans. Typically, it is the poor and young who form the bulk of subprime borrowers. Why were the sub-prime loans given out? Between 2002 and 2007, many banks started giving loans to subprime borrowers, typically through subsidiaries. They did so because they believed that the real estate boom, which had more than doubled home prices in the US since 1997, would allow even people with dodgy credit backgrounds to repay on the loans they were taking to buy or build homes. The government also encouraged lenders to lend to subprime borrowers, arguing that this would help even the...

Historically, Gold and Crude prices (Black Gold) share one of the strongest relationships. Higher crude prices push up inflation, enhancing the appeal of gold as an inflation hedge. Simply put, their key relationship is represented through a number called goldoil ratio (gold price divided by oil price). The 33-year historical average for this ratio has been around 15, indicating that 15 barrels of oil can buy an ounce of gold. This ratio signals buying and selling opportunities in the two commodities. The gold-oil ratio has been weakening since the beginning of the year. Currently, this ratio is hovering around 8.3, indicating that around eight barrels of oil will buy an ounce of gold — much lower than the historical average of 15 and a more recent 10-year average of 10.4. If the number has to move closer to the historical average (or 15), either gold must rise or crude must fall, or both conditions must be fulfilled. So it makes sense to invest in Gold now. Here is some interesting...