to whom the product can be offered. and you need to be sure that the product is being offered in a manner which is both suitable and appropriate for the client to which it is being offered. 29. the flexibility embedded in regulations is easy appreciate. more products add to depth and liquidity in financial markets. more importantly, they enable more efficient hedging of risks. but there are risks on both sides of the spectrum. the introduction of new products can get limited by the ability of market participants to offer them. our experience has been that only some of the authorised dealers are able to offer even marginally sophisticated structured products to their clients which results both in lower liquidity in products and incomplete markets, and in depriving segments of end - users of benefitting from the flexibility provided in the regulations. but again, there are risks of authorised dealers dealing in products which they do not understand or are not able to price independently or of offering them to customers who do not understand the product or where it is not suited for them. we are all aware of past such incidences that teach us about the pitfalls to avoid. of course, our directions on market makers in otc derivatives seek to provide a principle - based regulatory framework to address these risks. hence it is imperative that these regulations are adhered to in both letter and spirit. 30. there are also new players in the playing field. traditionally, the foreign exchange market was characterised by a closed user group with banks being the only authorised dealers and a few domestic corporates being the primary clients. exporters and importers with small hedging needs and individuals with personal forex requirements were marginal players essentially accessing the market as price takers. the regulatory framework now permits non - residents to access the domestic foreign exchange market to hedge their risks and also, in case of non - deliverable derivatives, to access the market without the need for underlying exposures. domestically, as the economy is opening up with increasing capital account convertibility and getting more and more integrated with the global economy, there are an increasing number of domestic entities getting exposed to foreign exchange risk and hence may need to access the foreign exchange market. going forward, these trends are likely to accentuate. with different players, there will be diverse needs and authorised dealers will need to gear up to serve these needs. illustratively, the hedging needs of an exporter or importer are very different from that of a corporate issuing foreign currency denominated

reserve ’ s purchase of treasury securities. the worry here is that the federal reserve ’ s purchases are “ monetizing the debt ” and that therefore these purchases will ultimately prove inflationary. in a world of excess reserves and a positive ioer, either the ioer or the fed funds rate could conceivably be used as the primary instrument of monetary policy. the federal reserve would have precise control over the ioer and this would lead to some variability in the actual fed funds rate. this would not be much of a departure from the recent past in which the actual fed funds rate has tended to fluctuate closely around the fed funds target. regarding the fed ’ s treasury purchase program, i want to make two points. first, with the fed funds rate constrained at zero lower bound, policymakers needed to find other ways to stimulate economic activity. the agency debt and agency mbs purchase programs proved effective in narrowing credit spreads in the debt and mbs market, but the federal reserve would have encountered diminishing returns in terms of impaired market function if it had raised the sizes of these two programs further. this suggested that the best course to hold down mortgage rates and other private borrowing rates would be to engage in a treasury purchase program that would put downward pressure on treasury rates. in this regard, the fed ’ s purchases have not been motivated by accommodating an expansive fiscal policy and the large fiscal deficits that are its consequence. i can assure you that the federal reserve will never engage in a program to accommodate or facilitate an unsustainable fiscal policy program. instead, these programs were designed to help ease financial conditions at a time that the federal reserve could not push the fed funds rate below zero. second, the program is small. so even if one were to take a darker view of what the federal reserve has done, it is important to put the purchase program in context. even after completion of a purchase program of up to $ 300 billion of treasuries, the federal reserve ’ s holdings of treasuries will be smaller than they had been in august 2007 on the eve of the crisis. moreover, as a share of treasuries outstanding, the fed ’ s share will be the lowest since the early 1990s. overall, the federal reserve ’ s balance - sheet expansion has had notable benefits. the asset purchase programs have helped to keep longer - term private interest rates relatively low, and the expansion of liquidity facilities has helped to restore more