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Article of the Month

Commodity Trading and Risk Management

Editor’s Note We are pleased to publish the twelfth issue of ‘Arbitrage’ – Finance and Investment Club’s monthly magazine. Arbitrage aims to cover a diverse range of topics under the wide domain of Finance and Economics. Our goal is to ensure that we provide significant value to the readers through informative articles and articles on current affairs. We would like to thank all the authors for contributing their articles for Arbitrage. In the Article of the Month – ‘Commodity Trading and Risk Management’, the authors Mr. Chinmay Antani and Mr. Deval Shah from School of Petroleum Management, Gandhinagar, have done a good analysis on risk management in commodity trading. We hope for the continuous support of our authors and readers to make this magazine a success. -Finance and Investment Club, IIM Rohtak


Siddhesh S Salkar

Vineeth Harikumar

Sankalp Jain

Pavankumar S

Bibekjyoti Roy Nandi

Naveen Kumar Aditi Patil


1. Commodity Trading and Risk Management


2. What next for Blockchain Technology?


3. Financial Inclusion, Still a Hurdle for India?


4. Rise of Thematic Investing: Understanding what it is


5. CRYPTOCURRENCY: Future of money or speculative hype


6. Prime Minister Should Apologize for Demonetisation



Commodity Trading and Risk Management


Chinmay Antani, Deval Shah School of Petroleum Management, Gandhinagar Introduction One of the parameters by which development of any economy can be estimated is its trade. Trading among the markets brings the growth, expands the business opportunities. There are several kinds of trading occurred in the world, one of it is “Commodity Trading� which is related to physical commodities and their transformation, which makes it different than any other trading. The trading of basic commodities like agricultural products, Energy sources, and metals is one of the oldest forms of economic activity. These commodities’ production and consumption have some difference in terms of time, place and form, which generates the necessity of logistics, storage, and processing respectively. By taking care of these we can transform produced commodities into consumable ones. This is the most important task of any commodity trading. Likewise, other trading pricing part plays a very significant role here. Any economy is sensitive to how this trading is taking place. A large set of firms are engaged in commodity trading. Some firms are standalone entity that specializes in that sector. Vitol and Trafigura is in business of energy trading mainly. Bunge, Cargill concentrate only on agricultural trading. Glencore participates majorly on all commodity trading. Some trading firms are privately owned firms and some of these nonpublic traders are funded by private equity investors and others are publically traded corporations. In India there is MCX (Multi Commodity Exchange) which regulates and provides platform for commodity trading.


An environment which is characterized by shortage of product supply or raw material supply, market fluctuation and frequent crisis, it is important for trading companies which are exposed to these high level of risks to manage their risk factors and adopt their strategies appropriately. Commodity trading involves various kind of risks.

Types of Risk Flat Price Risk Commodity trading always involves some flat price risk. In commodity market a firm purchases a commodity to be transformed, or hedged via some derivatives transactions until the physical position of commodity replaced by the sale to the original position. As commodity prices are highly volatile the flat price risk is also higher. Although the hedging converts the flat price risk into the basis price risk, a firm may not to choose hedging strategy. When a firm moved into upstream activities like mining and exploration, the exposure to high flat price risk is increased. Basis Risk Basis risk generally arise from changes in the economics of transformation during the life of hedge. Changes in transportation, storage and process costs more sometime than relative prices across locations, time and form. Hedging involves the exchange of flat price risk for basis risk. The basis risk is defined as difference of price between the commodity being hedged and the hedging instrument. Such price differences happened because the characteristics hedging instrument which is used for hedging is not that much identical to the physical commodity hedging. By trading in standardized liquid derivative contacts a hedger must accept the basis risk but enter and exit in such contracts is easy and less costly as many other traders are also available in the market.

Basis risk can also vary by commodity. It also arises from opportunistic behavior of market participants. Activities like corners and squeezes tends to cause distortion in the basis. Although the basis tends to be less variable than flat price risk still is has potential to impose large losses on trading firms. Spread Risk Many times the firm engages into spread risks which mainly cause because of mismatch in timing. A traditional commodity trading is mostly a time based trading in which a same commodity is bought and sold for different delivery dates. This types of trades are highly volatile and move in response to change in fundamental market conditions. Margin and Volume Risk The profitability of any trading firm depends on margins between purchasing and selling prices and also on the volume of transactions. These both the variables are positively correlated as margins or profit tend to be high when volume is high. The amount of financial risk associated with trading firms due to variation in margins and volumes depends on transformation it undertakes and assets it utilizes in those transformation. Transformation requires large investment in fixed assets entails high fixed cost and operational leverage. Operational Risk


There are some risk which cause failure of trading not because of volatility in prices and margins but due to some operation failure in process. One example is sufficient to explain operational risk as a firm which is transport commodity by sea is at risk to a breakdown of ship or a storm that delay operation and results into financial penalties. Contract Performance Risk A firm that enters into a contact is at risk to the failure of counter party to perform. When a firm that enters into contract to buy a commodity from suppliers and contract to sell a commodity to consumers can suffer losses when counter party default. The trading firm is obligated to provide commodity at previously contact price even though there is sudden increase in prices at supplier’s end. Market and funding Liquidity Risk Liquidity can vary across commodities. Liquidity tends to be decreased during stressed market periods. Stresses markets forces firms to change their position and strategies as per the situation in market. And firms can suffer huge losses in this transformation when markets are liquid as purchases tends to increase the price and sales tends to reduce the price. Funding liquidity is generally correlate with market liquidity. Stressed market condition also affects negatively on finding liquidity. Stresses in funding liquidity is often associated with large price movements that cause variations in margins which require high financing needs. Firms can suffer funding liquidity problems due to factors like wide market developments.

Political and Legal Risk Commodity trading firms that operate in countries with unstable political situation or weak legal procedures have always carry some risks of inefficiency, sudden policies changes which can influence the prices of commodities. Although sometime these firms have to operate in countries in which corruption is necessary which can cause ethical problems in the firm. Manipulation is also a big issue in some countries as that can effect on prices and margins in negative way. Risk Management in Commodity Trading: Diversification If trading is done on large scale, diversification across different commodities reduces the risk. The underlying commodities have nature to undergo large shocks that can damage the profitability of the firm. That is why trading with various different commodities can mitigate such idiosyncratic risks. A research was carried out by received data from the International Trade Centre of the trade flow in the US among 28 commodities which showed that higher the flow ratio safer and better trading took place. Nevertheless, diversification is also able to reduce the basis risk since basis movement has little correlation across the commodities. Integration in the value chain Value chain integration also reduces the risk. As we know self-hedges in the value chain can reduce the cost and balances offsetting effects. Since this commodity market is relatively illiquid


any trader has to take prevention to the cushioning effect of downfall in any part of the value chain, so this can perform a good risk handling way-out. Using Contracts & Paper trading In trading, we can practice various derivative contracts for managing the risk and even for speculation. Futures, forwards, Options (call/put), Swaps are different provisions for trading by which we can go under-hedging. One can play very strategically by understanding market and then using these contracts and can hedge price risk prevailing in one’s trading. Many times such paper trading is used for speculation. Using these methods is a different skill altogether which is useful but if it is not applied in a proper way it can harm the business too. Bundling Bundling strategy reduces transactions costs and allocates risks efficiently. If one can provide

financing, logistics and marketing activities bundled or providing underlying commodities to the processor and take ownership of processed commodities (tolling transaction), one can achieve good and stable profitability in trading. A tolling makes a bundle of arrangement feedstock sourcing, price risk management and marketing of output or derived commodity. Asset Management Weather asset should be owned or leased and which asset should be owned these all decisionmaking can also be the deciding factor of risk at your trading practices. Some firm owns asset at every stage of the value chain, some have only partial portion according to the commodity they trade. By studying assets owned by giant players in the trading market we can infer that major firms own midstream assets. Another parameter is asset intensity that is fixed asset upon total asset by which we can decide how much we are asset intensive. We found two categories one is asset-intensive (AI ~ 0.35) some low asset intensive (AI ~ 0.05).


What next for Blockchain Technology? Srajan Shrivastava T.A Pai Management Institute The misconception amongst those who have heard of the word “Blockchain” is that Bitcoin is the best offering of this technology. The other side to this is the fact that a majority have heard only of Bitcoin and are unaware that it runs on blockchain technology. Bitcoin definitely is a poster boy for blockchain but is in no way its best offering. Bitcoin was the first popular use of blockchain and helped showcase its potential. However, Bitcoin is in no way perfect and the recent ban on the use of Bitcoin by the Chinese government shows the lack of trust on this cryptocurrency.

So, if a government does not trust a cryptocurrency would it be able to trust the platform on which it runs? The answer is, if it doesn’t trust the platform then it will lose out on one of the greatest disruptive technologies of the 21st century.

At present, the domain in which blockchain is advancing at a fast pace is finance. The reason it is being adopted in this industry first is because of the outdated procedures of the financial industry. There hasn’t been much advancement in the way business is recorded since the 17th century when stock exchanges and double entry book-keeping first became prominent. Definitely, there has been digitization on this platform, but, that about summarizes the advancement in the past 300 years. There has been no effect on the core methodologies of recording financial information. Because of this slow change, the manipulations that have happened over the years have been huge and are still prevalent despite there being many regulatory agencies. Hence, blockchain was automatically attracted to this industry as it is a distributed ledger which keeps a record of every transaction that has ever happened. It can be called a tripleentry bookkeeping system where


apart from the usual double entries, an additional third entry exists which is a verifiable cryptographic receipt of any transaction. Since it’s a code that cannot be altered (even if painstakingly altered someone in the blockchain will get to know) and is decentralized, there is no way of manipulating it. This removes the need for audits and scrutiny. Another advantage of blockchain is the transaction time and charges. As everything is decentralized and therefore requires lesser infrastructure and systems, the process of transacting will be sped up and will also cost way lesser than what it is now. As mentioned before, Bitcoin is the most prominent user of the blockchain. But it has recently started to lose its face due to its prevalence in the black market and the dark web. Anonymity is the major cause which makes a majority doubt its security. These statements are contrary to the fact that bitcoin continues to appreciate in value, but one point to be inferred from its current price, fluctuations, and skepticism from governments is that bitcoin has an unprecedented future. Enter Ethereum, the cryptocurrency that can do much more with blockchain than just act as a currency. Its

creator, a Russian programmer, Vitalik Buterin wanted Ethereum to be “anything to anyone”. Another major point about Ethereum is that it is growing at a faster rate than bitcoin in terms of use and has lower transaction times which is a major drawback of bitcoin’s blockchain. Ethereum is an application platform for not just money but

also asset issuance, crowdfunding, domain registration, title registration, gambling, prediction markets, internet of things, voting, and many others. It shows the true potential of a blockchain. It is far more secure, reduces the technical knowledge barrier to blockchain and performs way more functions than bitcoin.

Is financial sector the only industry that can benefit from blockchain? Not at all. There are more than 30 industries that are predicted to use blockchains in the future. Take for example voting, use of blockchain would provide an audit trail for each vote and also


authentication of voter’s identity, none of which can be tampered with. Another booming industry, i.e., Internet of Things(IoT) can also leverage the blockchain technology by letting the devices communicate autonomously without a central hub to manage updates, bugs, and energy management. The aptest industry for blockchain after finance is supply chain. Due to a vast number of transactions involved in a supply chain, a blockchain will help in maintaining a decentralized repository for those concerned, which is devoid of human errors and available as soon as the transaction happens. The transport giant Maersk is already testing blockchain to improve its logistics efficiency. These are just a few examples; Blockchain has a use in almost every industry in the near future.

If blockchain is so rewarding then why aren’t people or companies adopting them? Cost of implementation is always the generic reason but the foremost reason is the understanding of a blockchain and the coding involved to use it. Many do not possess the technical know-how to work on a blockchain. There are a handful of people at present who can work on blockchains and are able to make the most of this technology. Rest of the population which forms a staggering 70-80% rely on the ones mentioned above for blockchain implementation or just don’t know about blockchain. Another reason for its slow adoption is because of it still being in its nascent phase. Companies are waiting for

the right time to leverage this technology once they are sure it will become profitable for them. Hence early adopters are the only ones risking blockchain implementation at present. A major barrier to adopting blockchain is the loss of jobs that can be caused due to this disruptive technology. It is estimated that once blockchain is fully implemented in the financial industry a whopping 1.7 million people will lose their jobs. However, like automation of manual labor, which happened in the 19th century, there is a high chance of new jobs emerging which in time will provide employment to all with suitable skill up-gradation.

In the end, the main question we should be seeking is, “What does the future of blockchain look like?” As discussed in this article, there are a myriad of opportunities for this technology to grow and flourish. There are likely chances of blockchain integrating with up and coming technologies like data analytics, IOT, and robotic process automation, causing it to evolve. For cryptocurrencies, Ethereum might be superseded by another more developed currency bringing in more speed, security, and features to get the maximal usage of the blockchain. The recent enthusiasm being gained in the world and people understanding that bitcoin and blockchain aren’t the same thing signals a positive outlook for the future of blockchain. With so many ifs and no concrete proof, only time will tell where blockchain ends up!


Financial Inclusion, Still a Hurdle for India? Ananthu R IMI, New Delhi 2017-19 Introduction When there are some efforts and lesser results, it calls for an introspection. This is the simple reason why we should look into the matter of lesser proportionate results or improvement in financial inclusion of India despite the colossal efforts. Since independence India is pushing itself towards financial inclusion in rural areas as the soul of India lies in rural India. There are several initiatives which include priority sector lending, followed by, co-operative lending, lead bank scheme, service area approach, microfinance, kisan credit cards, and business correspondence. Creation of National Bank for Agriculture and Rural development, the introduction of regional rural banks/ local area banks and Pradhan Mantri Jan-Dhan Yojana forms some notable and extensive initiatives. Financial inclusion is our nation’s priority. It is no longer an option, but a compulsion. The state of India today, where about three-fourths of the total population is surviving with under rupees 120 a day. It is probably a reflection of our collective mistake of believing all the pushing efforts would include every Indian under financial services or inclusion. If we closely observe, all these initiatives are supply driven. That is supplying financial services to the doorstep of people. Finance

availability is not an end in itself, but a means to an end. Our ultimate aim is to get a constant source of income for poor. So that there will be demand for financial services. If banks do not take initiatives to penetrate into the rural market, there will be other players who are willing to, provided there is a demand for it. Here, supply driver financial inclusion doesn’t work. Cost factor The results of most of the earlier initiatives were on the lower side. Based on NSSO reports, the share of institutional credit to farmers declined from a peak of 69.4 percent in 1991 to 56 percent in 2012. That is farmers dependence on non-institutional loans has gone from 30% to 44%. The availability of finance is needed, but not sufficient enough for the reduction of poverty. High-cost financial inclusions have rarely enthused rural households. According to Kamaljit Rastogi (Head of products, FINO, a key service provider in the micro-banking industry), opening a bank account itself is a huge challenge. It has taken around four to five years to make a noticeable impact on this respect. The biggest problem lies in the sustainability of these accounts. According to available data, nearly 70% of such accounts are inoperative after opening. Banks should not just stop at opening an account for the rural people. Banks should understand their needs, create

9|Page awareness among them and help in their economic upliftment. How do they recover the costs? They need to offer multiple products like savings, remittances, insurance, and loans over this channel to make sufficient money to make the whole network sustainable. Illiteracy In India, the literacy rate is almost 73% only. If we take the states such as Bihar, Rajasthan, Utter Pradesh, Madhya Pradesh and Jharkhand, where the majority of financial inclusion has to be done, the literacy rate is around 60% only. Even though institutions are trying to give all the information through mobile messages, illiterate people need the help of other to get the meaning of it. This puts them into a threat of insecurity. This will, in turn, keep illiterate away from financial inclusion. Here the privacy of poor people is breached. Sometimes BCs are giving same PINs for all the customers to make his/her job easy. It is very important to note that not only big corporates are concerned about data breaches, even these people are concerned in their own way even though we estimate the cost of data loss is almost zero.

total banking business is accounted by moneylenders. This leads to a question, does interest rate really matter in this segment? These questions lead to the need for grass root level research. That is, if interest rates matter, then why people are not shifting to banking rather than seeking from moneylenders. Not only banks, there is a well-structured financial network of cooperatives, MFIs, selfhelp groups. Is it only due to ease of doing business or some other factors influence the same?

Failed Business Correspondent (BC) model BC model was introduced in 2006. The aim was to provide banking services to poor at very reasonable cost. MC model played a very critical role in fetching a large number of JanDhan accounts. But BC model was unable to provide various basic banking services for rural poor. Reserve Bank has asked banks to open at least one branch in every village with a population of 2000 or more. But according to 2011 census, almost 96% of villages have pollution less than 1000. The compensation given for BC agents in the form of the commission is very less compared to that of insurance and mutual fund agents. Lending activities of Banks through BCs are very less. The main activity of BC model is opening new accounts, but after a while, this opportunity is getting exhausted (particularly after implementation of Jan-Dhan scheme) Threat from PPI (Prepaid Issuers)

Moneylender’s influence Despite persistent efforts by institutions to implement financial inclusion, moneylenders are flourishing in the same sector. In India, 30% of

Banks have been partnered with agents in creating BC networks to offer services such as remittance. Customers recognize the agent through the signage and remit money by paying legitimate fees and taxes. After each such transactions, the remitter will receive a mobilefriendly receipt as a proof.

10 | P a g e PPIs can offer services such as mobile top-ups, railway ticket bookings, utility bill payments, etc. Now, apart from these PPIs can also provide domestic money transfer services. But now some PPIs have started poaching banks’ BC agents. Because of this, banks’ efforts in building-wide BC network go waste.

different banks or financial institutions can spoil the functioning of both of them. This type of an integration should be taken under state-level Bankers Committee. The sustainability of the services can be ensured only through the demand-driven economy. So, the government should pool all the rural development programmes to an integrated scheme which can ensure a permanent source of income for poor, through the employment of the rural people. Even though variations will be there, this can ensure a demand-driven financial inclusion, which is the current need for developing India. Need for single authority

Physical branches, a solution? If we take the case of a village having a population of around 1000, if we can implement Jan-Dhan based account opening for all, there will be around 1000 accounts. Any number of accounts more than 500 cannot be served properly by BC model, instead, there is a need for Brick and mortar branch. If our system is able to open these branches in the villages, we might be able to tackle the situation. Again the difficulty is how to ensure 1000 accounts under one branch where there are various financial players with many more savings, deposits, loan instruments. There comes the need of the day, financial integration among the services and different players. Under close examination, even more than one branch of

Presently, there are a number of regulatory authorities which takes the responsibility of financial inclusion. RBI, NABARD - National Bank for Agriculture and Rural Development, SEBI - Securities and Exchange Board of India, MUDRA bank are some of them. All re thinking that this much number of authorities can ensure financial inclusion of India. But the truth is that there is no fixed responsibility on a single institution or the responsibilities are not divided properly. If we take the present conditions, NABARD has a widespread presence across the country. It can be the most suitable single authority to take this responsibility. But NABARD is not well equipped to head this mammoth task. Still can give a try through phased manner, which gives further hope to Indian financial inclusion.

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Rise of Thematic Investing: Understanding what it is Bibekjyoti Roy Nandi IIM Rohtak, 2017-19

There has been a recent trend among investors who are looking to bypass the monetary policy and political turbulence, to approach thematic investing strategy. This enables them to tap into the future growth stories.

Mattioli Woods, one of the UK's leading providers of Wealth Management and Employee Benefit Services, has increased its use of thematic investing to 34% of clients’ portfolios, as it attempts to seek out value while providing an element of protection in an uncertain world. But, what is Thematic Investing? It is basically investing in themes by researching on trends rather than making investments based on the past performance of the market or a company' s fundamentals. It is a forward-looking top-down approach. Unlike the relative investment strategy which assigns weights in a portfolio based on market capitalization, it involves identifying and capitalizing on emerging opportunities that span across economic sectors and regional boundaries. Fads are avoided and only after a thorough research securities are picked. It seeks to invest in baskets of securities that are exposed to long-horizon structural changes. Examples of such themes are Clean Energy, and Cyber Security. This requires a fundamental understanding of the impact of long-term social, political and economic trends on a region or sector. This will help in identifying

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prospective opportunities, their associated value and risks. To put it in simple words, thematic investing is identifying and researching future trends and investing in them. How is it different from the relative investment strategy? A report by McKinsey illustrates some of the differences:

How to approach Thematic Investing: 1. Identify the right trends: This part is essential and an investor should choose a trend that he's comfortable in and aligns with his values. To do this, he should consider all relevant themes, understand them, prioritize them and then make a few selections to research further. It's crucial to determine whether a trend is structural, short-term or speculative in nature, so that fads can be avoided. 2. Identifying associated themes: After identifying trends, the associated-themes must be researched upon. An analysis of the possible impact across regions and time needs to be done. The investor should rapidly identify the effects of a trend on revenues and profit

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pools in affected subsectors. This will help in getting detailed insights and a fair idea of his exposure. For example, growing energy consumption in emerging countries can be a powerful trend, the investor can investigate the market for solar energy in India. 3. Prioritize and Choose Themes: Questions that need to be asked for this process: I. Is the theme investible?: Investor should assess the profitability and the risk profile of the theme and also should try to identify other asset class that might turn out to be profitable due to direct or indirect impact of the theme. II. What is the risk that the theme will not materialize?: Investor should focus on offsetting the risks and understand what the risks could mean for the investment. III. Does the theme fit with the current portfolio construction and investment policies?: The investor should choose themes which can be easily integrated with his portfolio and monitored. This can provide a direction and focus to the thematic investing approach. 4. Develop an investment thesis: After prioritizing themes, the investor must create a proposition describing how and why the investment in the themes will create value over time. According to McKinsey report, this typically involves two stages: I. Developing an understanding of the associated value chains including the key players, industry dynamics and performance drivers. II. Developing a perspective of how the industry dynamics will be impacted by the theme. 5. Build the portfolio: After developing a clear thesis, the investor can screen asset classes to identify the strongest ones that will generate value over time. The assets should have solid industry fundamentals and high exposure to the theme in order to offset the long tenure and associated risk. The portfolio should be well-balanced with each asset given its due proportion according to the investment objectives and goals. Thematic investing offers an alternative approach to traditional investing approach. It utilizes the strengths of the institutional investors to the maximum and provides an opportunity to gain understanding, knowledge and insights necessary to form informed opinions for investment.

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CRYPTOCURRENCY: FUTURE OF MONEY OR SPECULATIVE HYPE Samiksha Jain International Management Institute, New Delhi gain. Although Bitcoin is still the king of cryptocurrency, there are many pretenders to its throne. Ethereum and Ripple are the closest competitors. History of cryptocurrency:

Introduction Of all the astonishing things happened last year, the surge in the popularity of cryptocurrency has been the most captivating. From retail investors to big companies like Reliance Jio, crypto currencies have held the attention of corporates, individuals and government alike. There is a growing list of companies that have added cryptocurrency into their statements and it seems that it worked for them. The latest addition to this list is Kodak, which launched its own cryptocurrency, KodakCoin. As soon as this news was out, Kodak Stock price jumped up to almost 50 %

Bitcoin is where it all started. Bitcoin was released as open-source software in 2009 by Satoshi Nakamoto, a person or group whose identity is still unknown. In May 2010, the first real-world transaction of bitcoin took place. 10,000 bitcoins were transferred to buy 2 pizzas. Today, its worth is around 900 crores. This rapid wealth creation brought cryptocurrency to everyone’s notice. Mechanism of how a crypto currency works: Let’s see what cryptocurrency is and how it works. Cryptocurrency is basically a virtual currency that is based on block chain technology. The major difference between any e-wallet and cryptocurrency is that wallets are regulated by government or any other regulatory authority like banks in the

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same way as its physical form. Cryptocurrency has no physical counterpart. Alternatively, it has a long line of security code. Cryptocurrencies cannot be printed; these are ‘mined’. Here mining can be referred to as codes which are cracked using mathematical calculations and algorithms. This method of mining is very complex and consumes a lot of energy. A cryptocurrency like bitcoin consists of a network of peers. Every peer has a record of all the transactions and thus the balance of every account. A transaction is a file that says “A gives X bitcoins to B”, and is signed by A’s private key. After signed, a transaction is broadcasted in the network, sent from one

peer to all other peers. This information is immediately known by all other peers but it needs confirmation. Till confirmation it can be forged. After confirmation nothing can be done. Confirmation is done by miners. Miners check every transaction, verify them and then spread them in the network. After a transaction is confirmed by a miner, this transaction is added to the database of every peer. Then it becomes a part of the blockchain. For this they get reward in the form of bitcoins. While there is no regulatory authority, the system itself is designed in such a way that the network maintains a foolproof system of the record of every transaction as well as tracking issuance of the curr enc y.

It is pred icte d that by 204 0, no mor e than 21 mill ion bitc oins can be min ed. Min

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ing becomes harder with every successive bitcoin. It is analyzed that almost 16 million bitcoins have already been mined. All these things make bitcoin a secure and convenient way to transfer. It can be termed as a digital transfer of ownership in a completely transparent way. Benefits of cryptocurrency: The major factor which made cryptocurrency famous is that it is completely decentralized and unregulated. You can trade bitcoins anywhere throughout the world without thinking about any regulations and currency exchange rates. They are purely based on the concept of demand and supply. Also no central bank or country can release more currency to devalue bitcoin.

Despite its value reduction in 2017, major companies like JP Morgan, Reliance Jio, and Kodak are still positive about the use of Cryptocurrencies. Not only corporate companies, but the government of various countries like Australia is also investing in Cryptocurrencies. Organizations like International Monetary Fund are giving positive signals about it, and countries like Japan is giving official sanctions to the use of bitcoins. Hurdles faced by Cryptocurrencies:

Due to its anonymity and convenience, it is emerging as the future of payment system. Despite people like investor Warren Buffett and Nobel laureate Robert Shiller have called it a bubble, supporters of virtual currencies are betting that cryptocurrency will ultimately be accepted as alternative currencies, making them immensely valuable. The growth in the value of bitcoin in past years shows how well cryptocurrency was

When we talk about money in the Indian context, we require which is a stable store of value. There is a high level of fluctuation in the values of cryptocurrency. Throughout the world, governments have been struggling for the formation of laws to gain from taxation. There is also an intense fear throughout the world that bitcoins are becoming a safe haven for unaccounted wealth. Since the value of bitcoins is borderless and it is uncontrolled by authority, it is becoming a cause for concern for many economies. The Government of India and China are calling it a ‘Ponzi’ scheme and trying to bring it under the

accepted by market.

regulations of the central bank. Income tax

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department of India has already issued notices to various people and had claimed that near $3.5 billion worth transaction has been done in past 17 months. Also, the major factor benefits of crypto currency, that it cannot be stolen is also now under speculation. According to a research conducted by Lex Sokolin, hackers have stolen $1.2 billion worth of Bitcoin and rival currency Ether. Hacking of crypto currency is growing as a multimillion annual revenue industries. What we can expect in future: We believe governments around the world will invest more time and effort to understand cryptocurrency and to bring it under some form of regulation. While this may affect pricing in the interim, it could make a way for bitcoins to become a globally acceptable

way to transact. Governments may approve exchanges where bitcoins can be traded and allow trading through these exchanges. Cryptocurrencies have the potential to completely revolutionize the way we perform the transactions and it can trigger a new era in business which is much more transparent and easy. The world is now saturating with options to invest your money in real estates, stock markets, gold. Therefore, a new option like crypto currencies needs to be developed for wealth creation. Some experts have also cautioned against a bitcoin bubble. A balance needs to be made between convenience and regulations. In a nutshell, bitcoins will continue to spike hysteria and hog headlines throughout the world during the upcoming year.

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Prime Minister Should Apologize for Demonetisation Shagun Sidana NMIMS, Mumbai 2017-19 A few days after a massive economic disruption drive was launched by Prime Minister Narendra Modi, former PM and highly respected economist Manmohan Singh said, “Demonetisation is nothing but a clear case of organised loot and legalised blunder”. He further prophesied of a 2 percentage point drop in the GDP of the country. It turns out that his predictions were spot on. The figures for India’s GDP for the first quarter of the current fiscal year showed that the growth has dipped to 5.7% as compared to 7.9% in the April-June quarter in 2016. This two and a half people led government intensified an existing trend of slowing economic activity by implementing demonetisation. Moreover, RBI spent around 300 billion rupees on the printing of new currency and managing of other logistics of demonetisation.

Raghuram Rajan, the former Governor of the Reserve Bank of India, in his book “I do what I do” said that he was never in favour of the government’s move of demonetising Rs 500 and Rs 100 notes on November 8, last year. The former governor in his book wrote, “I felt the likely short term economic costs would outweigh the long term benefits of demonetisation.” “The fact that 99%

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currency was deposited and returned to RBI does suggest that the aim has not been met.”, Rajan said in an interview. He also felt that there were alternative measures to achieve the main goals. Government’s own confusion and constant flip flops are apparent whenever it is asked to give ostensible reasons for the government to have adopted this disaster. The reason has shifted from curbing black money to stopping of terrorist funding to abolishing of fake currency notes to finally digitization of the economy but the point is, the reasons are still unclear and vague. It is high time now that the ruling party should reveal the real behind the scenes actions and political intentions of adopting demonetisation. The scale of BJP’s victory in Uttar Pradesh can fully be explained by demonetisation. Thus, this policy has turned out to be one of the grandest hoaxes in Indian political history.

This Modi led disaster clearly was an unnecessary suffering throughout the country. Ordinary people had to wait in long queues that offered no assurance of money at the other end. Housewives who had salted away their savings in biscuit tins founded their years of thrift as worthless. On asking for 50 days’ time just after demonetisation was implemented by the Prime Minister, Manmohan Singh said, “It is important to take note of the grievances of the ordinary people who have suffered. The prime minister says that we should wait for 50 days. Fifty days is not a long time. But for the poor even a short period of 50 days can be disastrous”. The unorganised sector was hit the hardest. As many as 250000 units in unorganised sector were closed with a large number of workers losing their jobs. According to a recent study, the government’s demonetisation exercise is estimated to have wiped away around 1.5 million jobs. The lack of cash reduced both consumption and demand across the board. A booming economy that boasted the highest growth rate in the world suddenly became a cashscarce economy. Production went down in all sectors. Small producers could not get working capital to keep their businesses going, and many had to shut down. There has been an inventory pile up due to low consumer demand. Several small scale and medium scale enterprises are now struggling to their feet. The informal financial sector- rural moneylenders who provide loans that

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amount to 40 percent of India’s lending system- has all but collapsed. The liquidity crisis has deeply affected farm production, farm prices and agricultural credit repayments. Thus, those at the bottom of the economic pyramid, who rely heavily on cash for day to day activities were the principle victims of this policy. Government is not admitting that the economy is doing poorly because sentiments are important for investments and that is important for growth. If the government or the RBI even give a hint to this effect, there will be a big impact on the stock markets. Thus, there is a high chance of development of a stock market bubble as while the stock market is booming due to global factors, chances are that another crash is inevitable. The underlying economy is not booming and the adverse effects of demonetisation are still in place. Thus, demonetisation is a manufactured crisis, a crisis which was ill planned, badly implemented and disastrously executed. Demonetisation failed in its stated objectives. Modi came to power in 2014 promising growth, employment, encourage investment. These objectives lie in tatters with his ill-considered demonetisation. The situation certainly is worrying. But is the Modi government listening? It should do so before things get worse.

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CALL FOR ARTICLES Finance and Investment Club of IIM Rohtak invites articles from all Business Schools across India. The article should be original and should be related to finance and economics. All the reference should be cited and sources of images should be mentioned clearly. The winner of the article of the month will get Rs.300/- with an ecertificate. All the other selected articles will be published in our magazine ARBITRAGE Instructions: 1. Please send your articles before 25th February, 2018 on 2. Do mention your NAME, INSTITUTE and BATCH with your article 3. Font: - Times New Roman, Size: - 12 in word .doc/.docx 4. Please DO NOT send PDF files and kindly stick to the format 5. Number of authors 2 at max 6. Maximum Word Limit: 1500 words, Minimum Word Limit: 500 words 7. Naming Convention: Name1_Name2_CollegeName.doc 8. Any Image without the source or label will not be accepted IMPORTANT: The article should be original and should not have been/should not be published elsewhere. You will be disqualified if you violate the same.

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Disclaimer: The views and opinions expressed in this magazine are those of the authors and do not necessarily reflect the opinion of the stakeholders of IIM Rohtak.

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We are pleased to publish the twelfth issue of ‘Arbitrage’ – Finance and Investment Club’s monthly magazine. Arbitrage aims to cover a diver...


We are pleased to publish the twelfth issue of ‘Arbitrage’ – Finance and Investment Club’s monthly magazine. Arbitrage aims to cover a diver...