Finance

Strong criticism about carry trade
Foreign exchange carry trades — where speculators borrow in a low interest rate currency and then lend or invest in another currency for profit — are increasingly being seen to pose a major risk to international financial stability.
UK Financial Services Authority chairman Lord Turner has, of late, articulated the need to crack down on this activity since he feels it hardly serves any useful social or economic purpose. He has further suggested that bank capital adequacy standards and liquidity requirements need to be tweaked higher to factor such activity.
It is common knowledge that the Yen carry trade and more recently, the dollar carry trade have helped speculators create asset bubbles, especially in the developing world.

Some of the excellent recommendations made by the 13th Finance Commission that are worth studying:
The commission has dumped numerical targets in favour of qualitative ones for the fiscal and revenue deficits. The deficits are to go up in the downswing of a business cycle and come down on the upswing — all the way to a surplus in the case of the revenue deficit — with a council of wise mean moderating any inclination on the part of the government of the day to declare a downswing when there is only an election on the horizon.
The commission has focused on the government’s liabilities as a proportion of GDP.

VIX rises: India’s Volatility index, VIX, which reflects investors’ perception about market risk, rose to 30.07, its highest since September 14. A rising VIX suggests increased risk aversion to stocks.