among the steps that have been taken by the reserve bank over the years towards this end. financial innovation is an essential feature in the history of development of financial markets. innovations that are motivated by the need to match the needs of the investor and the issuer or made possible by advancement in technology or knowledge are essential for evolution of financial markets. incentives play a significant role in shaping the development, stability and functioning of the financial markets. reserve bank has been trying to align incentives by regulation and supervision though regulation itself may have created unintended incentives / disincentives as in the case of requirement regarding held to maturity ( htm ) dispensation. in the process of development of new instruments, reserve bank ’ s endeavour has been to ensure calibrated and orderly development of the markets with emphasis on prudent risk management and promotion of financial stability. within the limited scope of its engagement with the corporate debt segment as the securities and exchange board of india ( sebi ) being the main regulator of this segment, reserve bank has taken steps, such as, introducing credit default swaps ( cds ) to manage credit risk, repo in corporate bonds to enable funding of positions, limited market making role for the primary dealers, providing a pooling account facilities to the clearing corporations of the exchanges to settle the trades in the books of the reserve bank of india, etc. there has been a demand for increased direct or indirect support from the banking sector for expanding the corporate debt market. reserve bank views such proposals with caution because of the prudential concern for the health of the banking sector as well as the fact that the intention is to generate incremental resources and not redistribute the existing ones. as we know banks are already substantially exposed to the infrastructure sector. hence, demand for credit bis central bankers ’ speeches enhancement by banks has to be seen in the context of the fact that it would only increase their exposure. further, credit enhancement by banks will not lead to development of a real “ corporate ” bond market. credit enhancements by way of partial guarantees by multilateral institutions, such as, the asian development bank is likely to attract investments from insurance and pension funds in the infrastructure sector and lower the cost of funds for companies. such credit enhancement measures outside the banking system could be the way out. foreign exchange market current account deficit & capital flows in the context of foreign exchange market, one of the most talked about issue is the rising current account deficit ( cad ).

bank of france reports industrial output continued to increase in all sectors in february 1997 bank of france, monthly business survey, 17 / 3 / 97. in february, according to the business leaders surveyed by the banque de france, industrial output continued to increase in all sectors. the capacity utilization rate rose slightly. overall demand grew at a moderate pace. there was strong demand from foreign markets, particularly from northern europe, including germany and the united kingdom, and from the united states and asia. the rise in the dollar and in sterling reinforced the competitiveness of french products. growth in demand on the domestic market was much more moderate. order books are deemed to be satisfactory in all sectors, with the exception of the food - processing industry, where they declined slightly and appear to be insufficient. inventories of finished products are still somewhat above normal levels. in particular, they are considered to be above desired levels in the food - processing, intermediate goods and automobile sectors. in the coming months activity should continue to increase in all sectors, with the exception of the automobile sector. commodity prices were stable overall. however, price rises were recorded in certain parts of the intermediate goods industry, such as the rubber and plastics, metal - working, and wood - processing sectors, and in the food processing industry owing to the appreciation of the dollar. intense competition prevented these increases from being passed on to sales prices, which scarcely changed, except in the automobile sector, where they declined. the business leaders surveyed continued to be cautious in their investment plans. there were few plans for large - scale investment, and they mainly concerned the renewal of modernization of existing equipment. retail sales contracted in february, after posting a substantial rise in january. employment levels remained stable in industry, except in the automobile sector, where they declined. the retail and market services sectors showed little change, but employment fell in the building industry. increasing use was made of flexi - time, annualized working time and part - time working to respond to variations in demand.