RBI autonomy and the Indian financial sector
Abstract
In the context of the worldwide trend
towards greater independence for the
central banks and the recent public
pronouncements by the Governor of the
Reserve Bank of India (RBI), there is now a
strong possibility of the RBI being given
more autonomy. This is likely to be
accompanied by several changes in the
operations of the RBI including a pruning of
its peripheral functions.
This paper by Samir K Barua and
Jayanth R Varma argues that these changes
would have momentous implications for the
financial system as a whole. Portfolio
managers would have to contend with a
wider choice of securities, more frequent
portfolio rebalancing and use of risk
hedging mechanisms. Corporate finance
managers would face increased complexities
in decisions like financing mix, cash
management, designing financial
instruments, capital budgeting and
management of exchange risk.
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