to come. let me go into more detail as to why this is the case. when the cpix is calculated, mortgage interest expenditure for home - owners is excluded. mortgage interest expenditure for home - owners in the cpi is calculated as a product of two indices : an interest rate index and a capital stock index. the interest rate index consists of an average of interest rates on mortgages, from variable interest rates to interest rates with a fixed duration of eight years. the capital stock index, on the other hand, measures the acquisition value of the housing stock financed by the mortgages. but with the calculation method used by statistics sweden the rising house prices will only affect the capital stock index when the houses change owners. even if house prices are increasing substantially, this will only have a limited impact on the capital stock index in the short term. after all, it is only a small percentage of houses that are bought and sold every year. on the other hand, an increase in house prices affects the index for a long period to come. if house prices increased, say, twenty years ago, this will still have some effect even on today's index. this is because at least some of the houses bought prior to the price rise today are sold at a higher price. the calculated mortgage interest expenditure for home - owners can thus change even if the interest rates remain unchanged, if the acquisition value of the housing stock changes. this is an effect that will have significance in the future. house prices have risen over a long period of time, and this will gradually have an impact on the capital stock index. without going into any technical details regarding calculation methods, one can observe that this is the main reason why mortgage interest expenditure for home - owners will increase in the coming years – or, in other words, why cpix inflation will be below cpi inflation. the riksbank is assuming that the difference in the rate of increase between the cpi and the cpix as a result of the housing stock increasing in value will be approximately 0. 2 percentage points several years ahead. the fact that mortgage interest expenditure for home - owners is affected not only by changes in interest rates but also by the way house prices develop comes as no surprise. but one can say that the trend rate of increase in the capital stock has meant that the problem has gradually become more tangible. other problems with the cpix there are also other problems with the cpix, related to calculation methods, which have perhaps not received so much attention.

as he may end up in delivering the most expensive security. 44. it has also been argued that extending the period of short selling to be synchronous with the tenor of the futures contracts, may impart liquidity to the futures market by facilitating efficient arbitrage. however, the view that short selling, directly or indirectly, could pose potential risks and can easily destabilize the markets can ’ t be overlooked. in india, with public sector spending being one of the dominant drivers of the economic growth and in the backdrop of heavily loaded government borrowing programme, and with a rather shallow market, it would need careful consideration to allow free short selling in the government securities market. iv. currency futures market 45. recently, the recognized stock exchanges have been permitted to offer currency futures contracts in the currency pairs of euro - inr, japanese yen ( jpy ) - inr and pound sterling ( gbp ) - inr, in addition to the usd - inr contracts. two exchanges have already introduced other currency pairs which has increased the volumes greatly. 46. while the volume of trade in the currency futures has increased sharply, the open interest has remained low and stagnant and constitutes only a small percentage of the outstanding otc contracts. the above trend reflects that the exchange traded markets are still not being used for hedging purposes by different participants. it is largely the day - traders taking intra - day positions and closing by day - end which dominate the market. 47. it may be pertinent to mention that the cash settlement mode was accepted for currency futures because physical settlement was not a feasible option since rupee is not fully convertible on the capital account. in the otc market, there is an elaborate framework for regulating transactions, including derivatives, in foreign currency and presence of an underlying exposure is a basic requirement. it was not possible to carry over this requirement onto the exchange traded market. hence our reluctance to allow fiis to trade in this market. it is not considered opportune to remove the requirement of underlying commercial transactions in the otc market. v. structured derivatives 48. the structured derivative market in india is of nascent origin and most of the structures are equity linked structures. the rbi guidelines clearly prohibit any structured derivative product with another derivative as an underlying. however, many exotic currency derivatives have been popular, primarily involving zero - cost strategies. as part of policy rationalization, the draft guidelines on forex derivatives have suggested permitting writing of covered options