Sub Prime Lending
It is lending to people who are less capable of repaying (More credit risk; Less credit worthiness).
In US some institutions has lend loans like this to such people(less capability to repay). Since they are high risk loans interest rate will be high. These institutions also adopt a process called securitization (conversion of these loans into tradeable securities).
In simple terms the institutions says that i will earn repayment every month from these borrowers and institutions will trade this loan as bonds and investors will invest in it. As most of the housing loans were traded like this in us these borrowers didn't pay back.
So it led to non-performing assets in banks balance sheet. So investors in these bonds started selling their bonds which pull down the us stock market. Everyone wanted to take their money in these bonds as loans are not repaid.
It had an impact on Indian stock market as well some people who lost their money also wanted to compensate their loss by selling shares they holded in Indian companies, this pulled back Indian stock market also for a while.
Note: stock market will come down when sellers are more (bearish). It will go up when buyers are more (bullish)
What did US GOVERNMENT DO to minimize this risk? They cut down the interest rates so that people will borrow at lesser rate and invest. But this helped Indian market also because they borrowed in us at lesser rate and invested in Indian market which is bullish now.thats is why our market adjusted very quickly.
Rupee appreciation
It means i am able to but dollar at a cheaper rate.
That is for a particular amount of rupee I can buy more dollars.
When it happens. When we have sufficient amount of dollars in hand we don't need more. When US depends on Indian goods they have to pay in rupees and they exchange their dollars for rupees with RBI and hence we have more dollars. When investments from US come into India also this exchange takes place and hence we have more dollars and rupee appreciates.
Right now because of last reason our rupee has appreciated.
When rupee appreciated it is bad for exporters because say for every one dollar product they sell in US they will get less rupees.It is good for importers because for a particular amount of rupee in hand they can get more 1 dollar products and sell in India.
But some domestic manufacturers who manufacture and sell in India will get affected by substitute import products because they become cheaper.
What RBI has done to curb appreciation is open up investment opportunities for Indians in US. That means they allow them to invest more in us there by more dollars will be demanded by them to invest and dollar demand will raise and rupee appreciation will come down.
But critics also comment on these that when US market is not good who will invest outside and hence this didn't have much impact on curbing the appreciation.
PRABHU.S
KIAMS
