Back to Projects JOIN WHATSAPP GROUP Free PSC MCQ 4 Lakhs+ Please Write a Review Current Affairs 2018 to 2022 PYQ 1200 Q/A Part - 1 PYQ 1200 Q/A Part - 2 PYQ 1200 Q/A Part - 3 PYQ 1200 Q/A Part - 4 PYQ 1200 Q/A Part - 5
Kerala PSC Indian Economy Book Study Materials Page 398Book's First Page
14.18 ndian onom derivative instrument’, i.e., an ODI) is (iv) PNs also offer an important hedging tool the restrictions on foreign investments. to a foreign investor already registered For example, a foreign investor intending as an FII. For example, an FII may wish to make portfolio investments in India to obtain ‘long’ exposure to a particular was required to seek FII registration for Indian security. The FII can hedge the which he is required to meet certain downside exposure to the listed security, eligibility criteria. Lack of full Capital already purchased by purchasing a ‘cash Account Convertibility further enhances settled put option’. Although the Indian the entry barriers from the perspective exchanges offer options contract, these of a foreign investor. However, Since contracts have a maximum life period January 2012, the Indian government of three months, beyond which the has taken a decision to give direct access FII shall have to rollover its positions, to such prospective ‘foreign individual i.e., purchase a fresh option contract. investors’ who were hitherto banned to invest in equity of Indian companies. Alternatively, it can avail of a PN which can be customised to cater to its hedging (ii) The off-shore derivative market allows requirements. investors to gain exposure to the local shares without incurring the time and (v) Potential investors who would like to costs involved in investing directly. In take direct Indian exposure in future, return, the foreign investor pays the PN may make initial investments through the issuer a certain basis point(s) of the value of PN route so as to get a flavour of future PNs traded by him as costs. For instance, anticipated returns. directly investing in the Indian securities (vi) Further, trading in ODI/PNs gives an markets as an FII, has significant cost and opportunity to offshore entities to have time implications for the foreign investor. a commission based business model. This Apart from seeking FII registration, route provides ease to subscribers as it he is required to establish a domestic bypasses the direct route which may be broker relationship, a custodian bank resource heavy for them. relationship, deal in foreign exchange (vii) And lastly, it was a highly ‘safe and and bear exchange rate fluctuation risk, pay domestic taxes and/or filing tax lucrative route’ to invest the return, obtain or maintain an investment ‘unaccounted’, ‘even illegal’ money into identity, etc. These investors would rather the Indian security market for huge profits look for derivatives alternatives to gain a (during the booming period). Experts cost-effective exposure to the relevant even imagined that it may be allowing market. the ‘black money’ of India (stashed away (iii) Besides reducing transactions costs, PNs from India through ‘hawala’ kind of also provide customised tools to manage illegal channels and deposited in the tax risk, lower financing costs and enhance havens of the world in ‘Swiss Bank’ kind portfolio yields. For instance, PNs can of financial institutions) to get invested also be designed for longer maturities back in the market. Again, ‘terrorist than are generally available for exchange- organisations’ might have been using this traded derivative. route, too.