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Sovereign Gold Bonds of Government of India – a risk factored evaluation

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Draft (email comments to tirumalakv@gmail.com) Brief Unconventional monetary instruments carry risks that need to be quantified to help policymakers make an informed decision by allowing an objective cost-benefit analysis.   This paper discusses Sovereign Gold Bonds (SGBs), a unique monetary instrument issued by the Government of India, and quantifies the risk that the government bears while underwriting the guarantee on the future gold price. One way to quantify this risk could be by using Black-Scholes-Merton’s option valuation model. It is seen that quantified risk arrived this way outweighs potential benefits arising from cheaper money raised through SGBs. This helps policymakers to understand the true risk they are undertaking by promising future gold price-linked returns.  Sovereign Gold Bonds (SGBs) Sovereign Gold Bond (SGB) scheme was launched in November 2015. The main objective of SGB is to act as an alternative to purchasing/holding physical gold. These bonds are issued on p

Dominant Currency Paradigm - An interesting progress in open economy macroeconomics after IS-LM-BoP

Does it matter if the exporters/importers of a country show preference for a certain currency while invoicing the trade? I had dabbled with this few years ago  here , which was based on the Dominant Currency Paradigm presented by Gita Gopinath, Casas et.al. The expanded theory titled " Dominant Currency Paradigm " (DCP) was published at the AER in 2020 and the corresponding replication code with data is made available here .  DCP is a significant development after Mundell-Fleming's model using IS/LM/BP curves which has been a workhorse model for decades. Mundell-Fleming (and the Devereux model) uses bilateral exchange rates to arrive at equilibrium rates, whereas DCP takes into account the additional factor that countries may use a third currency as invoicing currency while trading bilaterally. For example, traditional Mundell Fleming model for trade between India and Japan would use INR/Yen pair to understand disequilibrium whereas the actual invoicing of this trade may

Fourth industrial revolution and India's demographic challenge

Klaus Schwas coined the term 'fourth industrial revolution' to describe the confluence of emerging technology breakthroughs, covering wide ranging fields such as artificial intelligence, robotics, telecommunication revolution such as 5G, the internet of things, driverless vehicles, 3D printing and additive manufacturing, nanotech, biotech, materials science, energy storage and quantum technology. On the surface, it appears to be the next logical step from the third industrial revolution where electronics and IT were leveraged for production and service delivery. However, as Schwas argues, the growth of these in future would lead to exponential impact on various spheres. The velocity, scope and impact of these changes may take directions that may not be wholly predictable, affecting all fields from agriculture, education, trade, warfare, manufacturing and everything in between. There is a good (and urgent!) reason why policymakers should be abreast of developments in more than

Akamaisation

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(This post originally appeared at Swarajya magazine here )  During the 1990s, computing faced a unique ‘ memory wall problem ’ due to increasing processor clock speeds but relatively slow memory speeds. While processor speeds increased at 50% year on year (Moore’s law) memory speeds increased only by 10%. Imagine a talented and quick chef bogged down by a slow assistant, who takes longer than usual to fetch ingredients from the pantry. The solution was found by using a ‘cache’, a smaller but faster memory placed nearer to the processor, thus avoiding multiple trips to the larger and slower main memory. This was like the chef getting a shelf that stocked all recently used or frequently used ingredients closer to his table. Today we have multiple caches at multiple levels in any given computer. Similar problem of earth-size arose when digital contents were to be served to multiple users across the globe. Imagine Netflix maintaining data centers only at US and trying to service the users