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Are too much foreign flows bad?

 Sometime back, we saw that current account surplus position became headache for policymakers because of too much dollar inflows. On one hand, India is a capital starved country and hence we chase after money through FDI. On the other hand, large inflows create problem for Central Bank which faces impossible trinity which states that policy makers can choose any two, but not all macroeconomic objectives - foreign capital mobility, fixed exchange rate and inflation management. Cut interest rates too far and risk scaring off foreign capital. Raise borrowing costs too much to fight inflation and funds rush in, sending the currency higher and strangling exports.  The developed world central bankers are likely to create more than $10 trillion of new money. Most of it is deployed in the Government bond markets earning next to nothing. Some of this liquidity will find its way into Indian assets as well.  Let's suppose RBI fixes interest rate independently at 8% because India's i...
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How Bonds Affect the Stock Market

 Bonds Affect the Stock market by competing with stocks for investors' money. As a result, when stocks go up in value, bonds go down. Stocks do well when economy is booming and when economy slows, investors prefer bonds with regular interest payments guaranteed by bonds. Sometimes, both stocks and bonds can up in value at the same time when there is too much money or liquidity, chasing too few investments. There are times when stocks and bonds both fall. That is when investors are in a panic and selling everything. During those times, glod prices often rise.
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Basic macroeconomic

  Everyday Terms in Macroeconomics – And Their Surprising Implications December 27, 2020 Everyday Terms in Macroeconomics – And Their Surprising Implications   Macroeconomics is replete with regular-sounding terms such as consumption, savings and investments. However, if we were to interpret them from our everyday household experiences, we could be left with an erroneous understanding of the dynamics of the economy.   For instance, all else being equal, when a salaried household reduces consumption, it increases its savings without impacting its income. From an overall economy perspective, however, if we all reduced consumption of domestic goods and services, we would only reduce our total domestic income, with no impact on the stock of total savings.   Likewise, our household experience might tell us that savings are a pre-requisite to fund investments. From an overall economy perspective, however, households would struggle to increase the stock of collective saving...
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