23 September 2007
Inflation: Drop in purchasing power of currency(new dimenson). It is a result of change in the ratio of availablity of funds/currency and goods. Bank rate is a tool to control the availability of funds so that the ratio can be managed under certain circumstances. The same principle will apply to derivative market to be influenced by inflation.
24 September 2007
Hi, During inflation a bag full of money can buy only a handful of goods.During deflation a bag full of money can buy a truck full of goods. Inorder to contain the flow of money inside the economy the RBI will increase the CRR so that banks cannot lend more. Because of the higher prices therewill be less demand for the products and it will be affect the profitability of the companies in the derivative segment.
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