BC FINANCE
Saved by @Mollyycolllinss

An extensive yet super simple thread to understand the role of @RBI and how it uses 'Repo Rate' and 'Reverse Repo Rate' 👇🧵

You may bookmark this for further use.

#economy #RBI #financialliteracy

 1. Let us first understand the role of Reserve Bank of India in managing the Indian economy.
There are two major elements of the Indian economy.
👉The Businesses:
They are the producers of the goods and services. Any business would be happy if it is growing and the prices of the goods and services sold are ever rising. They would be more interested in ‘Economic growth’.
👉 The Households: These are the people who are consumers and they spend the money to buy the goods and services which are sold by the businesses. Any consumer would be happy if the prices of the goods and services are low. Hence, they would be interested in ‘Less Inflation’.
2. As the prices of goods and services rise, there will be economic growth in nominal sense but then there will also be inflation which is perceived as a problem in developing countries like India.
3. Hence, there has to be a proper balance between these two: ‘Economic growth’ and ‘Inflation’.
It is the job of Reserve Bank of India to do this.
4. Let us understand few more basic concepts before we dig in deeper.
A. More the demand of any commodity, the businessman will increase the price. Less the demand of any commodity, the businessman will decrease the price to attract the consumers.
B. RBI is the apex bank and it controls the money supply in the economy. It basically mints the money and controls all the commercial banks.
C. More the money supply in the economy would mean more money in the hands of the people. More money would cause increase in the purchasing power and hence the demand would increase. Now, you know that this will cause the price to increase (read point A).
D. On the contrary, lesser money supply would cause the purchasing power of the people to fall. Hence, there will be fall in the demand. And fall in the demand will cause the prices to fall (read point A).
To summarize:
5. Okay, now let us consider this analogy to understand the working of the economy smoothly.
6. There is a flowing river whose water is being controlled by a dam. The engineer of the dam controls the gates of the dam to make sure that the water level is under control.
7. Whenever, there is lack of water in the village, the gates of the dam are opened by the engineer. This is to ensure that the people do not run out of water. Also, care has to be taken by the engineer as opening all the gates would cause flood like situation in the village.
8. Also, whenever, there is excessive rains, the engineer makes sure that the gates are well locked to avoid any excess supply of water.
9. This is how the economy of the country is being controlled by RBI. Here, the role of RBI is similar to that of the engineer of the dam. The water supply is akin to the money supply.
10. The gates of the dam are various tools used by RBI to control the money supply in the economy. The village here would be the economy of the nation.
11. So, basically RBI controls the money supply and maintains a balance between ‘Inflation’ and ‘Economic growth’.
This can be done using various tools. Let us discuss 'Repo Rate' and 'Reverse Repo Rate' here.
12. ‘Repo Rate’ is the rate at which our banks borrow rupees from RBI. It is also called as repurchase rate.
13. Okay, lets have this analogy first,
You go to a friend and ask for money, say 100 Rs. He don’t trust you so he asks you for security. You give him your watch as a security.
14. However, you also enter into an agreement to buy back the watch at a predetermined rate of interest. This interest is known as ‘Repo Rate’. Your friend is ‘RBI’ and you are ‘Commercial Bank’.
15. Whenever the banks have any shortage of funds they can borrow it from RBI. RBI lends money to bankers against approved securities for meeting their day to day requirements or to fill short term gap.
16. Who decides ‘Repo Rate’?
‘Reserve Bank of India’ decides the ‘Repo Rate’ and it changes it as and when needed keeping in mind the inflation and the growth factor of the economy.
17. What will happen if ‘Repo Rate’ is decreased?
👉 Decrease in ‘Repo Rate’ will make it easier for the Commercial Banks to lend money.
👉 Increased lending activity will cause an increase in the money supply.
18. What will happen if money supply is increased?
👉 If RBI makes money supply easy then it will become very easy for commercial banks to lend loan to general public.
👉 Lending loan to general public in excess will cause increase in the supply of money in the hands of people.
19. What will happen if people have more money?
👉 More money in the hands of people would imply more purchasing power.
👉 Increased purchasing power will lead to greater demand of goods and services. Hence, the prices will increase causing inflation to rise.
20. What is 'Reverse Repo rate'?
The rate at which commercial banks lend money to RBI is called as Reverse Repo Rate.
21. Now, when the banks lend money to RBI, they will be left with less cash and this would mean less money as loan to public and again cause the prices to fall as there will be fall in the demand of goods and services.
22. RBI always tend to keep Repo rate higher than Reverse Repo rate as it do not want to end up paying more.
The End.
@finbloggers, @Dinesh_Sairam this can help beginners 🙏

More from swapnilkabra

swapnilkabra
swapnilkabra
@caswapnilkabra
Have you ever wondered why price of large cap cos like Reliance ind. Ltd. or Apple inc. fluctuates less in magnitude but share price of a small cap co witnesses huge volatility?
A simple thread to explain the economics behind stock fluctuations!👇🧵
#investing #financialliteracy

1. Penny stocks show huge volatility but on the other hand stock of large cap companies show little fluctuations.
Did you ever observe how ‘Foreign Exchange’ rates show little fluctuation and are range bound?
Let us understand the economics behind it.

2. In this thread we will learn two things,
👉Why large companies show quick change in their prices though the magnitude of change is less?
👉What causes huge jump in prices of penny stocks? Or why on a bad day they can easily fall with huge magnitude?

3. First things first. Let us understand who decides the price of goods? Is it the ‘Buyer(s)’ or the ‘Seller(s)’?
The answer to this basic question is that price is decided by both of them.

This is because,
👉 A ‘Buyer’ would always be willing to buy any commodity at lesser price.
👉 A ‘Seller’, on the other hand would try to sell his product at a greater price.
TRADING
swapnilkabra
swapnilkabra
@caswapnilkabra
Layman’s explanation to PE Ratio and how it works.
A long thread! Do Bookmark this for patient reading.

#investing #investors #PEratio

1/ PE (Price Earning) ratio is one of the most important metric used by investors to make decisions while picking up stocks. But, more often than not, it is grossly misunderstood.
Let us decode this metric.

2/ Table of contents
•How to decide what to buy?
oCase A: Case A: Fresh Apple vs Stale Apple
oCase B: Costlier Fresh Apple v/s Cheaper Fresh Apple
oCase C: Apple vs Orange
•How to read PE ratio
•How is PE Ratio misunderstood?
•When will PE Ratio not work?

3/ How do you decide, what to buy?
Case A: Fresh Apple vs Stale Apple


You go to a market and buy an apple. You have a choice to make.
Apple ‘A’ is fresh and juicy. Apple ‘B’ is clearly stale. Apple ‘A’ costs you ₹.20 while Apple ‘B’ costs you only ₹.10.
FINANCE
Advertisement
swapnilkabra
swapnilkabra
@caswapnilkabra
While learning accountancy a student is taught to
👉Debit all expenses, credit all income.
👉Debit all assets, credit all liabilities.
👉Debit the receiver, credit the giver.
Why is it so?
Let us find out the rationale behind three golden rules of accounts. 👇🧵 (1/n)

'Balance Sheet' and 'Profit & Loss Account' are two important aspects to learn accountancy.
Let us first understand how to interpret a Balance Sheet. (2/n)

Balance sheet is a simple snapshot of ‘Sources of funds’ (‘Liabilities’) and ‘Application of funds’ (‘Assets’) as on a ‘particular’ day. (3/n)


It is important to note that the Balance sheet may change every day. That’s because the liabilities side and the assets side may change frequently.
Example: The customer from whom the amount was receivable (Debtor) will get converted into Cash the moment he pays money. (4/n)

Suppose a businessman starts a business with his own money (equity/owner’s fund) and uses this money to buy various assets. (5/n)
BOOKKEEPING , LEARNING
swapnilkabra
swapnilkabra
@caswapnilkabra
A super simple thread to help everyone understand the concept of 'Fiscal Deficit' and what happens when government spends more than its receipts. 👇🧵

#fiscaldeficit #economics #financialliteracy

1. Let us understand everything bit by bit.
Say, Raju is a businessman. Now, like every businessman, Raju is ambitious and curious to know his profit. Hence, he keeps his accounts to calculate his profit.

2. Throughout the year, his total revenue was Rs.10 lakh and his total expenditure was Rs.8 lakh. Hence, Raju is having profit or surplus of Rs.2 lakh.

3. The next year, due to lack of demand, his revenue fell to Rs.7 lakh and his expenses increased to Rs.9 lakh. Hence, Raju is now having loss or deficit of Rs.2 lakh.

4. Now, let us replace ‘Raju’ with ‘Government’ and you get the concept of ‘Fiscal surplus/ deficit’.
GOVERNMENT
swapnilkabra
swapnilkabra
@caswapnilkabra
A small thread to explain the tax implications of dividend of Rs.974 per share declared by #majesco Ltd which is winding up its business🧵👇

1. For starters, Majesco is declaring such huge dividend on account of it selling its US business. But, as an investor, should one think of buying the shares now? Let us find out.

2. The current market price per share of Majesco is Rs.980. This is almost at par with the dividend per share. Now, if you buy shares of Majesco, you will be entitled to dividend of Rs.974 per share.

3. Please keep in mind that dividend income is not exempt in the hands of the shareholders. It will be taxed as per regular slabs.

4. Say you are in highest slab of 30%, you will be taxed at that rate. To simplify you will be getting a net amount of Rs.681 per share (Rs.974- 30% tax).
BUSINESS

More from Finance

SocialDistanced MedStudent
SocialDistanced MedStu...
@DrSomedayMaybe
You have heard a lot about how anon accounts are being doxxed by Sarah Mojarad. I learned yesterday that I am unfortunately one of those accounts.
SARAH MOJARAD DOXXED ME.
And she could dox you, too.
1/
FINANCE
Steve
Steve
@braidedmanga
Ivor Cummins has been wrong (or lying) almost entirely throughout this pandemic and got paid handsomly for it.

He has been wrong (or lying) so often that it will be nearly impossible for me to track every grift, lie, deceit, manipulation he has pulled. I will use...


... other sources who have been trying to shine on light on this grifter (as I have tried to do, time and again:


Example #1: "Still not seeing Sweden signal versus Denmark really"... There it was (Images attached).
19 to 80 is an over 300% difference.

Tweet: https://t.co/36FnYnsRT9


Example #2 - "Yes, I'm comparing the Noridcs / No, you cannot compare the Nordics."

I wonder why...

Tweets: https://t.co/XLfoX4rpck / https://t.co/vjE1ctLU5x


Example #3 - "I'm only looking at what makes the data fit in my favour" a.k.a moving the goalposts.

Tweets: https://t.co/vcDpTu3qyj / https://t.co/CA3N6hC2Lq
FINANCE , ALL
Advertisement
Trung Phan \U0001f1e8\U0001f1e6
Trung Phan 🇨🇦...
@TrungTPhan
Our intuitions often leads us astray. A good reminder: study counterintuitive math and economic results.

Here are 9 of them 🧵

The Birthday Paradox

In a room of 23 people, there's a >50% chance that 2 people share the same birthday.

This type of probabilistic thinking does *not* come naturally to many people.


The Coastline Paradox

Fractal geometry is also confounding:

The coastline of a landmass does not have a well-defined measurement. As the unit of measurement gets smaller (eg. from KMs to cm), the length increases without limit.


Winner's Curse

In an auction, the winning bid will usually exceed the intrinsic worth of an item leading to a significant overpay (and negative net profit for the winner).


Braess's Paradox

Removing an extra road can make everyone's commute time faster.

Why? The existence of a "fast" road leads to congestion because everyone uses it. If you remove the shortcut, traffic flows better.
FINANCE , COUNTERINTUITIVE
0xRafi
0xRafi
@0xRafi
1/ A thread on $APY @apyfinance. I believe this could become a major DeFi bluechip, and I’ve been waiting since the 10th Feb for the price to settle before posting this! But it just won’t. So I’ll post it now, but please go slowly if you buy it. It just did a 5x in 2 days!

2/ So the APY platform is a yield farming aggregator that uses a single pool of liquidity and automatic rebalances the portfolio among different strategies to optimise risk adjusted yield revenues. It is basically like having an automated fund manager managing your portfolio.

3/ Today, if for example, you have funds in a yearn vault and you realise another vault launched with better returns, it can cost 100’s of dollars in ETH fees to switch between them. For anyone not investing huge amounts, this makes switching strategies completely unpractical.

4/On APY, with a single deposit, users funds will be spread across multiple yield farming strategies and automatically rebalance over time to optimise risk-adjusted returns. So users won’t need to keep track & switch between strategies (+pay for fees!) to optimise yield over time

5/ The genius step here is that the $APY algorithm will track not only the strategies % yields, but also risk scores taking into account financial, liquidity or smart contract risks, so funds will be re-allocated over time in order to maximise yield but also manage risk.
FINANCE
Barsee
Barsee
@heyBarsee
This took me 6 years to learn, I'll teach you in 2 minutes.

23 sentences that'll make you more money than a $40,997 business degree:

1. Irresistible offer - Desirable outcome + proof + scarcity + urgency + guarantee + bonuses

2. Join the most expensive gym in your city. one connection will pay for it many times over - jk

3. If you keep waiting for the “right time” you will keep wasting all of your time.

4. Don't be cheap with: doctors, lawyers and tax advisors

5. Give yourself 3 days to do it and it'll take 3 days.

Give yourself 3 hours to do it and it'll take 3 hours.

6. Send a physical gift to customers and everyone who's worked with you for more than 3 months

7. Your customer's fear of loss is more powerful than their desire for gain.
ALL , FINANCE

You May Also Like

Vibhu Vashisth \U0001f1ee\U0001f1f3
Vibhu Vashisth 🇮🇳...
@VIBHU_Tweet
MAHARAJA CHHATRASAL BUNDELA was the great Bundela King who revolted against the Mughal ruler Aurangzeb.
Chhatrasal Bundela was born in year 1649 CE in Maur Hill of Bundela region to Champat Rai and Lal Kunwar. He was the descendent of Rudra Pratap of Orchha.


His ancesters were the vassals of Mughal Emperor. He drew inspiration from his father and revolted against the alien rule of Mughals. He was just 12 yrs old when his parents died in fight against the Mughal Army of Aurangzeb in 1661.

When his beloved father attained martyrdom in the year 166, the young Chatrasal was present in the last battle of his father against the Mughal and from these valiant campaigns,..

..he gathered the courage to free Bundelkhand from Aurangzeb’s rule.
He joined the Mughals initially, and was recommended by the Rajput King Mirza Jai Singh to be recruited in the Mughal Army in order to support their Deccan Campaigns.


But serving the alien rule of Mughals which brought chaos and misery to Bundelkhand was unacceptable for Chatrasal Bundela and his father’s incessant struggle against the Mughals kept the fire of independent Bundelkhand alive in his heart.
ALL
Janmajit Sinha
Janmajit Sinha
@Impregnable007
#Thread - 1/21

A story of a brave woman who let her "breast" cut to protect the life of Netaji Subhash Chandra Bose!

Neera Arya was born on March 5 1902 in Khekra Nagar, Uttar Pradesh in a distinguished & eminent businessman Seth Chhajumal's family. Since her childhood,


2/21
She was a true nationalist & always had a vision of becoming a part of the freedom fighter movement. She was also reportedly accused as an undercover by the British Govt.

That was the time when her father's business was flourishing in Calcutta, though his business was..

3/21
spread across the country but Calcutta was the center of his business and that was one of the reasons why her education was done in Calcutta. During that period of time, she had learned quite a few languages along with Bengali, Hindi, English.

4/21
Her father got her married to a CID Inspector "Shrikant Jairanjan Das" in British India but they were two different individuals, Neera Arya was a true nationalist but her husband was a true British servant. She was highly motivated & she had an urge of getting us freedom..

5/21
so she ended up joining the Jhansi Regiment in Azad Hind Fauz after the marriage. It was the regiment that the British always accused them of spying on British Govt.

It was the time when Neera's husband Jairanjan Das was given the responsibility to spy on Netaji Subhash..
CULTURE
Advertisement
Invest Like the Best
Invest Like the Best
@InvestLikeBest
In 1937, a trucker got frustrated waiting for his cargo to be unloaded. He later sold his company for $1.1 billion.

Here’s the story of how Malcom McLean made a billion dollars and which startup could be following in his footsteps. (Inspired by our episode with @laurabehrenswu)


In the early 1950s, the shipping industry was a dying business.

New York’s docks were handling half as much domestic cargo in the early 1950s as they had been in the depressed 1930s.

In thirty years, no one had invested significant money in coastal shipping.

Why?

As McLean found out, loading ships was difficult and slow.

A truck or train would deliver items to the port. Each item was unloaded separately, recorded, and carried to storage.

When a ship was ready, each item was taken from storage, counted again, and hauled on-board.


The cost of this labor was significant. As one expert at the time explained:

“A four-thousand-mile voyage for a shipment might consume 50 percent of its costs in covering just the two ten-mile movements through two ports.”


Yet, despite the industry’s issues, it felt little pressure to change.

Foreigners were barred from operating domestically. Cartels ran international routes. And gov. subsidies eased the pain of labor costs.

Reshaping the industry needed an outsider.

Enter Malcolm McLean.
HISTORY
Noah Smith
Noah Smith
@Noahpinion
1/OK, data mystery time.

This New York Times feature shows China with a Gini Index of less than 30, which would make it more equal than Canada, France, or the Netherlands. https://t.co/g3Sv6DZTDE

That's weird. Income inequality in China is legendary.

Let's check this number.

2/The New York Times cites the World Bank's recent report, "Fair Progress? Economic Mobility across Generations Around the World".

The report is available here:

3/The World Bank report has a graph in which it appears to show the same value for China's Gini - under 0.3.

The graph cites the World Development Indicators as its source for the income inequality data.


4/The World Development Indicators are available at the World Bank's website.

Here's the Gini index: https://t.co/MvylQzpX6A

It looks as if the latest estimate for China's Gini is 42.2.

That estimate is from 2012.

5/A Gini of 42.2 would put China in the same neighborhood as the U.S., whose Gini was estimated at 41 in 2013.

I can't find the <30 number anywhere. The only other estimate in the tables for China is from 2008, when it was estimated at 42.8.
SOCIETY
Patrick McKenzie
Patrick McKenzie
@patio11
It’s underremarked upon that stablecoins accomplish basically all of the original design goals for Bitcoin qua a transactional mechanism (instant free value transfer anywhere), but that nobody cares about this because nobody ever cared about that part of the pitch.

“Why do people care about stablecoins then?”

A mix of “they encourage dollar-denominated liquidity in the cryptocurrency ecosystem and discourage withdrawal of the same” and “they’re good for money laundering.”

“But they make value transfer between exchanges much faster!”

This was a solved problem in traditional finance, too, mostly through the extension of credit. (It doesn’t matter how long settlement takes if there is sufficient trust to enable credit.)

The Bitcoin ecosystem is *positively allergic* to credit, so you have to call it a coin for them to accept it. And after you call it a coin they ignore everything the world has learned about credit, like risk management.

“Stablecoins aren’t credit!”

They’re pretty much exactly credit? A tether is a zero-coupon Bitfinex bond with a non-functioning call option. I
TECH