8 weekend LIFE

THE FREE PRESSJOURNAL

MAY 10, 2015

PIC: THECREATIVEBAR.COM

Envision

THE

DANGER ZONE
BEYOND
PIC: INOH.ORG

s we move along the risk scale

looking at alternatives with
increasing risk - right from the
almost zero risk Bank Savings Deposits,
all the way up to the Equity Shares at
the summit of the risk scaleyou might
wonder: Ought we stop there? Is there
nothing beyond, with even higher risk?
We all know there is; there is a whole
territory of financial products that normally goes under the name of derivatives. But that is a territory I fear to
tread. I know most of the investment
experts will not agree with me on that.
But I strongly believe that unless one is
trained for that sort of mountaineering,
one must not indulge in that sport. So
that leaves out most of us.
But, this is not just a trepidation of a
novice. I have been significantly influenced in my conviction by Taleb (Nassim Nicholas Taleb, the author of
Fooled by Randomness, The Black
Swan, etc) and Prof. Raghuram Rajan,
who now happens to be the Governor
of RBI. I shall share with you the views
of Rajan, with Taleb at the back of the
mind, some day; at a later point probably we could return to the understanding of risk a la Taleb.
Where do I draw the lakshman rekha
then? I draw the line where the equity
space ends and where the derivative
space begins. The reason is very simple:
up to there we deal with natural products likedebt instruments or equity
shares; derivatives are synthetic products. What is this natural v/s synthetic
distinction? To understand that let us
take some examples. A bond is a financial instrument that gets created when
a person A borrows from a person B
(persons A and B could be individuals,
companies or governments); it is basically an obligation to pay a certain
amount.
This instrument embodying the obligation is traded; the holder of that
instrument gets the right to receive the
payment; that is why the holder pays a
price for it. In a similar manner an equity share gets created when a person
contributes a certain part to the capital
of a business enterprise acquiring the
right to share in the profits and loss of
that enterprise.
A synthetic financial product, on the
other hand, is an instrument that is
deliberately created to mimic features
of a natural financial product. It is
designed to mimic some features, but
not others; and it is made to mimic
selected features of different products.
That is precisely the reason they are
called derivatives - because they are
derived from other products. Going
further, a synthetic product may be

The problem is basically of knowledge.

Natural products are easy to
understand; synthetic products are
not so easy, writes TENSING RODRIGUES.
constructed out of other synthetic
products, and so on; there is no limit to
how far a derivative chain can go.
Let us take a simple derivative: an
option. An option is a contract to buy or
sell a specific financial product, say an
equity share. The share is then called
the underlying instrument for the
option. An option contract that gives
you the right but not the obligation to
BUY the underlying security at a specified price for a certain, fixed period of
time is called a Call Option.

Similarly an option contract that gives

you the right but not the obligation to
SELL the underlying security at a specified price for a certain, fixed period of
time is called a Put Option. The instrument that you call an option, and which
is traded, is not the share itself; the
instrument embodies only a right to
buy or sell a share. But this right is traded like a share. You see the difference
here: the share that underlies the option
is a natural financial product; the option
that is constructed on the share is a syn-

thetic financial product. The option is

derived from a share. It is artificially created by the writer of the option.
What is the problem? The problem is
basically of knowledge. Natural products are easy to understand; synthetic
products are not so easy. Try it for yourself. Above, we have an explanation of a
share and an explanation of an option.
Which do you find more intuitively
understandable?
But the problem is not just that. The
derivative chains, as we said before, can

HOW TO COUNTER
SIDE EFFECTS
OF ANTIBIOTICS
As the very name antibiotics suggests, it kills
bacteria. Unfortunately, it also kills friendly
bacteria which are so very valuable for your
health, says AMAR CHANDEL.

START TAKING PROBIOTICS IN THE SHAPE OF

YOGHURT ON A REGULAR BASIS, WHENEVER YOU
HAVE A COURSE OF ANTIBIOTICS. PROBIOTICS
MUST BE CONTINUED LONG AFTER THE COURSE
HAS COMPLETED.

WRITE TO: Ketan Tanna, Feature Editor, Free Press Journal, Free Press House, First Floor, 215,
Free Press Journal Marg, Nariman Point, Mumbai - 21. Telephone: 022-22874566. E-mail:
features@ fpj.co.in Reg. No. MCS/048/2015-17; RNI No. 46955/88.

w w w. f r e e p r e s s j o u r n a l . i n

he Your genes may influence

how sensitive you are to emotional information, according
to a new research. The study from
the University of British Columbia
found that carriers of a certain
genetic variation perceived positive
and negative images more vividly,
and had heightened activity in certain brain regions, reports PTI.
"For people with this gene variation, the emotionally relevant things
in the world stand out much more,"
said lead author Rebecca Todd, a
professor in UBC's Department of
Psychology. The gene in question is
ADRA2b, which influences the neurotransmitter norepinephrine, Todd
said. Previous research by Todd
found that carriers of a deletion variant of this gene showed greater
attention to negative words.
Her latest research is the first to use
brain imaging to find out how the
gene affects how vividly people perceive the world around them. "We
thought, from our previous research,
that people with the deletion variant
would probably show this emotionally enhanced vividness, and they
did more than we would even have
predicted," said Todd.
She scanned the brains of 39 participants, 21 of whom were carriers
of the genetic variation. Carriers of
the gene variation showed significantly more activity in a region of
the brain responsible for regulating
emotions and evaluating both pleasure and threat.
Todd believes this may help
explain why some people are more
susceptible to PTSD and intrusive
memories following trauma. The
study participants were asked to
estimate the amount of 'noise', or
pixelation, applied to images that
had either positive, negative or neutral emotional content.
Compared to non-carriers, carriers
of the ADRA2b deletion variant gene
estimated lower levels of noise on
positive and negative images, relative to neutral images, indicating
emotionally enhanced vividness, or
EEV.

The Ass, the Cock and the Lion

STORYTIME

A hungry lion saw an ass in a

farmyard and his stomach
growled. Creeping stealthily
through the fence, he managed
to get inside without being
seen. Just as he was about to
spring upon the ass, a cock
began to crow. The sudden
sound startled the lion and he
fled away as fast as he could.
The ass was puzzled. If the
lion is scared of a cock, why
should I be afraid of him? he
thought. Ill give him such a
chase that he will never again
come to attack me.
The ass ran after the lion. The
lion saw this and ran faster to get the
ass away from the farm, and once
they were on safe grounds, he turned
around and pounced on the animal.
Moral of the Story: A false sense of
confidence often leads to danger.

CROSSWORD
3

INFO BYTE

Trend Track
WORLD WAR II pilots set a new
trend with their leather bomber
jackets. Fitted with snug cuffs
and waists, they are perfect for
the winter season. They are worn
by both men and women over
smart casual clothes. The short
warm jacket is best paired with
denims and boots for making the
right style statement.

LAUGH OUT LOUD

5

GITAS English teacher asked

her to write an essay on 'What
would you do if you became a
millionaire'. Gopi handed over a
blank sheet of paper. The
teacher yelled, "You've done
NOTHING! Why?" "Because if I
became a millionaire, that's
exactly what I would do" said
Gita happily.

Clues
Across
1. Danger (6)
5. Small
horse (4)
7. Young
woman (4)
8. Depressed
(6)
Answer:

Down
2. Destroys (4)
3. Solid carbon
dioxide (3,3)
4. Edible
mollusk (4)
6. Norway
capital (4)

Across: 1. Hazard 5. Pony 7. Lass

8. Morose
Down: 2. Zaps 3. Dry ice 4. Clam
6. Oslo

here are times when

it becomes unavoidable to take antibiotics. While these may
cure you of your diseases,
they leave you with nasty
side effects like bloating,
belching, gas, constipation and diarrhoea, says
IANS.
As the very name antibiotics suggests, it kills bacteria. Unfortunately, it
also kills friendly bacteria
which are so very valuable
for your health. Full one
to two kg of friendly bacteria and yeast are present
in your intestines. The
friendly bacteria not only
aid in digestion but also
lend a helping hand in
manufacturing B vitamins.
Not only that, these keep
the omnipresent yeast at
bay, thus fighting infection. As a result of the
intake of antibiotics,
yeasts grow unchecked
into large colonies, causing a condition called dysbiosis. These weaken your
immune system.
Here are a few simple
steps which can ease the
situation considerably.
The first line of defence is
cut out factors which
forced you to take antibiotics in the first place.
Quit smoking and drinking. Dump all soda. Put
aside those chocolates,
sugary and starchy foods.
Also out are dairy prod-

Are you sensitive?

Blame it on your
genes, says study

Kids Corner

XXXXXXXXXXXXXXXXXX

ucts, fatty and spicy foods,

tea and coffee. Increase
water intake.
Don't guzzle orange juice.
Vitamin C is better
obtained from oranges.
Taking it through juices will
only supply you excess
sugar, which will rather
worsen your condition.
Start taking probiotics in
the shape of yoghurt on a
regular basis, whenever
you have a course of
antibiotics. Probiotics
must be continued long
after the course has completed. Even otherwise, it
is a good idea to make
probiotics a regular part of
your diet.
Fermented foods like
pickles, pickled turnips
and carrots contain natural probiotics. That earthy
Kanji that your grandmother used to make will
be perfect during your
post-antibiotic days.
Eat light, easily
digestible food because
your digestion will be in
bad shape for several
months after taking those
tiny pills. Boil five mint
leaves, an inch of ginger
and about half a teaspoon
of Ajwain (carom seeds or
bishop's weed) in a glass
of water till the water is
reduced to half. Drink half
a glass thrice a day.
Light exercise is equally
important. What matters is
regularity. Another wonderful remedy in your
kitchen is garlic. Allicin
present in it gets rid of the
antibiotics in the body.
Vitamins A, C, E, zinc and
selenium are a great help.
Aloe vera juice protects
intestinal lining.
Make sure that you don't
get constipated. Psyllium
husk and flax seed will not
only aid in bowel movement but will also relieve
diarrhoea by absorbing
excess water. Antibacterial
oregano oil taken thrice a
day provides considerable
help.
(Amar Chandel is the
author of two self-help
books. The views expressed
are personal. He can be
reached at
asknature@gmail.com)

get any long; and longer the chain gets,

more complex the derivative becomes.
There is no limit on how complex a
derivative can become. And more complex the derivative becomes, more difficult to understand it becomes. In reality, beyond a certain point, the derivatives are constructed only by engineers,
because they require knowledge of
physics and mathematics that ordinary
mortals cannot grapple with; and they
are designed with the help of machines
that are used to send missions to the
Mars; and most of us do not own those
machines and do not know to run
them.
The result is a problem: an asymmetry
of knowledge between those who manufacture the derivative products and
those who consume them.
When common investors buy the
derivatives, sold by smart salesmen in
the market, they buy products that they
little understand. This is true of all
techonologically advanced products.
When we buy a gas stove, we more or
less understand how it works; when we
buy a frost free refrigerator we understand a little less; when we buy a Plasma TV we understand even less; and so
on. But with such gadgets the risk is relatively less. Because we can test them we can try them out in the show room
before we buy; and we can get the
defects attended to during the warranty period.
But with financial products there is no
trying out and there is no warranty. We
have to buy them on the information
provided, and hope that they work
when the time comes. And as the
derivatives get more and more
technologically advanced, our
helplessness increases.
There is thus an acute asymmetry of knowledge between
the financial wizards who
manufacture the synthetic
financial products and the
common investors who consume them. The asymmetry
increases as the complexity of the
products increases. Thus the common
investor may be at relatively low disadvantage, and therefore at a relatively
low risk, while investing in simple derivative products; but she is at an increasingly high risk as the complexity of the
products invested in grows.
Worse still, since the investor does not
understand the product, she does not
even know how complex the product is,
and therefore, what the risk is. In such a
situation, the smart solution is to draw
the laxman rekha at the very beginning
- where the equity space ends and
where the derivative space begins.

PUZZLER
Observe the
picture carefully
and find the odd
one out.

Answer:
Saw. It is not a
gardening tool.

SUNDAY

27 / 2015 Amrita Bharati, Bharatiya Vidya Bhavan; e-mail: amritabharati@vsnl.com