Missing financial markets in India

Shyamala Gopinath of RBI gives a very intertesting speech on missing financial markets in India

She begins looking at the several assumptions/theories whioch have been tested in this crisis

The crisis has undoubtedly raised serious issues with regard to the above market philosophy, as clearly evident in the explicit focus on financial stability which is being made formal mandate for all regulators, as part of the restructured regulatory arrangements in countries such as US and UK. While the crisis has not led to usurpation of the entrenched belief in the neoclassical theory of markets, certain long-held axioms have certainly been demolished. I would touch upon a few such issues in our context.

• Financial markets are self-equilibrating and hence self-correcting
• All financial innovation is useful and desirable
• Key parameters for market efficiency are turnover and liquidity
• Financial risk can be accurately measured and managed
• Free capital account imperative for deep, liquid financial markets

In missing financial markets in India she covers following areas:

• Corporate bond market: We only have a primary market. secondary market is negligible
• Credit Derivatives : RBI is again lookinmg at it after learning the lessonsfrom this crtisis
• Interest Rate Futures: has not oicked up. She looks at the debate on why it has not picked up. USeful stuff
• Currency futures market: the tradingf activity has picked up but open interest vbery low. Seculation happening and not much hedging of risks
• Structured Derivatives: at nascent stage and being looked at

Very useful sttuff on missing marklets or making Indian financial system more stable

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