The current issue contains seven research papers that cover exchange rate fluctuations, sustainability of balancing items in balance of payments, technology policy, price discrimination, price effects of derivatives, and alternative trade strategies from the perspective of water loss.

The first paper, "Power Laws in Exchange Rate Fluctuations", uses stochastic differential equation on daily time series of Japanese yen exchange rate against US dollar. The expectation value and the variance of the series are derived by solving the equation. It is shown that their power spectrums are expressed by the power function, w^_h, where w is the angular frequency and 1.9 < h < 2.6. The results also reveal that the power spectrum of the expectation value has two breaking points and that of the variance has one.

The second paper, "Sustainability of Balancing Item in 18 Industrial Countries' Balance of Payments Accounts: An Empirical Study", analyzes the sustainability of balancing items (errors and omissions) of these countries by employing the unit root tests with level shifts. The results suggest that balancing items of balance of payments accounts of all the 18 industrial countries are sustainable, except for Iceland, Denmark, Japan, Italy, France and Spain.

The third paper, "UK Technology Policy, The New Economy and Productivity in UK Manufacturing Industry", attempts to find the structural differences in UK manufacturing industries during 1970-2005 within the Cobb-Douglas production function framework with R&D as one of the factors. The empirical investigations in the paper confirm the short-run structural impact and non-significant long-run effects on productivity and competitiveness of the technology policies.

The fourth paper, "Price Discrimination and Targeted Advertising: A Welfare Analysis", presents a monopolistic model of price discrimination by means of targeted informative advertising. The paper shows that when targeting is imperfect, the monopolist will over advertise to the highest valuation group of consumers to the detriment of the lowest valuation group. Only when targeting is perfect will the seller behave in a socially desirable manner.

The fifth paper, "Linearity and Stationarity of South Asian Real Exchange Rates", uses recently developed nonlinear stationary test procedures to test linearity and stationarity and finds that the real exchange rates of India, Nepal, Pakistan and Sri Lanka are stationary despite the presence of nonlinearity. This finding also suggests that, it is possible to monitor and forecast the behavior of these nominal exchange rates, as well as to determine their equilibrium values using the corresponding relative prices.

The sixth paper, "Price Effects of Introduction of Derivatives: Evidence from India", looks at the impact of derivatives listings on returns of the underlying assets. Employing event study methodology, the study finds significant and positive abnormal returns around futures and options listing announcement dates in the National Stock Exchange (NSE). The results show that market capitalization of stocks on an average increased for each stock in the sample from day 0 to day 10. The evidence obtained from the study support the `market completion hypothesis' which is valid in the context of the US, the UK and other developed countries.

The seventh paper, "India's Alternative Trade Strategy from the Perspective of Water Loss", discusses the importance of water problem and how scarce it is becoming all over the world. The authors feel that regulating the virtual water flow is important as excess export of water would mean a net loss of our resource which in turn might put pressure on our already falling water table. Adoption of trade policies should not only be guided by traditional parameters like economic growth, but also by consideration of sustainability of our precious resource, water. A strongly outward-oriented policy even though conducive to high growth, is not desirable if we are losing our resource at a fast rate. The paper explores the question, `Why we really do need to rethink our trade policy once more?'

- S V Seshaiah
Consulting Editor