has changed markedly over time. chart 2 shows female mortality in england and wales in both 1902 and 2002. it shows the remarkable reduction in infant mortality during the twentieth century as well as the fall in mortality in middle age. of particular relevance to decisions on pensions is the expectation of life conditional on reaching retirement age. that is directly relevant to the purchase of an annuity on retirement. over the past century the normal retirement age in public service in this country has been constant at age 60. chart 3 shows the distribution of deaths by age conditional on having reached the age of 60 in england and wales in both 1902 and 2002. a woman who was 60 in 1902, and subject to the mortality rates of that year, would have expected to live for another 14½ years. by 2002 that expectation had increased to 23½ years. individual risk - that we die either earlier or later than the average for our cohort - can be insured by taking out life insurance against early death or by purchasing an annuity to insure against a later among recent discussions of misperceptions of probability are gigerenzer ( 2002 ) and taleb ( 2001 ). there is a large literature on uncertainty about earnings and productivity growth ; see, for example, macurdy ( 1982 ), abowd and card ( 1989 ) and meghir and pistaferri ( 2004 ). uncertainty about future returns on financial assets is the essence of the modelling of financial markets. an excellent introduction to this area is contained in the two 2003 nobel lectures by robert engle ( 2004 ) and clive granger ( 2004 ). death. 5 collective risk - that average expectation of life will rise or fall in the future - cannot, by definition, be shared among members of the same generation. the principle of insuring individual longevity risk is that those who live longer than average can be paid using the contributions of those who die earlier than average. but if the average itself rises all contributions must increase - there is no possibility for insuring changes in the average from within the cohort. can we quantify this risk? the expectation of life has risen significantly over the past century. but how will it change in the future? to answer that question we need to model and quantify longevity risk. 3. modelling and quantifying risks quantitative modelling has been one of the great advances of the social sciences over the past fifty years. but forecasts, whether of longevity or any other economic or social variable, inevitably require a

, in respect of their foreign exchange exposures and transactions are a dynamic component of management of capital account as well as financial supervision. reserve management the adequacy of foreign exchange reserves is a relevant consideration in the management of the capital account. first, adequacy has to be viewed not only in terms of trade needs but also other shortterm liabilities. second, it is not merely the long - term or short - term debt in terms of original maturity that is relevant for reserves, but the profile of external debt in terms of residual maturity. a traderelated debt which is in the nature of collateralised debt may be less severe on reserve requirements. third, any addition to portfolio flows may warrant comfort through some additions to reserves. in fact, there is merit in presuming that the flows are temporary till there is reason to judge them to be permanent. fourth, it is necessary to recognise that reserves provide cushion to manage real and external sector shocks like oil prices. fifth, there is usually an opportunity cost of maintaining foreign exchange reserves, but this must be weighed against the financial and non - financial costs associated with volatile and adverse exchange rate movements. finally, while the optimal level of reserves is difficult to quantify, attention to level of reserves as a means of self - insurance is essential. in the final analysis, the adequacy of reserves needs to be assessed in terms of a medium - term perspective taking into account the possible levels of the current account deficits, the composition of capital flows, the level of international confidence in the ability of the country ’ s payment position and pace and quality of growth. viewed from all these perspectives, the current level of reserves continues to be comfortable. the essence of portfolio management of reserves by the rbi is to ensure safety, liquidity and optimisation of returns. the reserve management strategies are periodically reviewed by the rbi in consultation with the government. in deploying reserves, attention is paid to the currency composition, duration and selection of instruments. while there is no set formula to meet all situations, the rbi applies sound portfolio management principles and risk management. exchange rate management a major success in external sector management has been the transition from an administered exchange rate regime to a more flexible, market - based system. under the new arrangements instituted in early 1993, the day - to - day movements in exchange rates are market determined. india ’ s current exchange rate policy focuses on management of volatility without a fixed target, while allowing