Daily Prelims Notes 22 July 2024

July 22, 2024
Posted by: OptimizeIAS Team
Category: DPN

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Daily Prelims Notes

22 July 2024

Table Of Contents

1. As IBC 2024 starts in Madrid on July 21, botanists show pejorative K-word in floral nomenclature the door

Sub: Sci

Sec: Msc

Context:

20th International Botanical Congress (IBC) held in Madrid, Spain.

Controversial Term:

Botanists voted to remove an offensive term from over 200 plant species names.
The new names will reflect the plants’ African origins.
The term “Caffra,” derived from “Kafir” in the Quran, became racially offensive under South African apartheid.
Botanists proposed removing the letter “c” from plant names to form “afra,” “afrorum,” or “afrum.”
Over 200 species’ names will change by 2026, such as the coast coral tree from Erythrina caffra to Erythrina affra.

Historical Context

The term was used pejoratively by European explorers and colonists for black people in southern Africa.
Afrikaners, descendants of European settlers, used the term to abuse black South Africans, including Nelson Mandela.
The term became particularly offensive in the mid-20th century under apartheid policies.

2. What are ‘rogue waves’ and how can AI help predict them?

Sub: Geo

Sec: Hydrology

Rogue Waves

Rogue waves are unusually large waves compared to ones which come before and after, that can threaten ships, coastal and offshore infrastructure, and human lives.
No forecasting method existed for rogue waves until recently.

AI Forecasting Method:

University of Maryland mathematicians Thomas Breunung and Balakumar Balachandran developed an AI program to forecast rogue waves.
The AI was trained using billions of data points from 172 ocean buoys.
The AI can distinguish wave patterns that precede rogue waves up to five minutes in advance.

Deadly Surprises:

Sea state refers to the condition of the water surface at a specific location and time.
The WMO sea state code rates wave height on a scale from 0 (no waves) to 9 (waves over 14 m).
Rogue waves are twice the size of surrounding waves and often form when swells converge or when ocean currents compress swells.
Rogue waves have caused significant fatalities and ship sinkings due to the lack of a real-time forecasting method.

3. Shift of Household Savings from Banks to Mutual Funds and Capital Markets including in futures and options (F&O)

Sub: Eco

Sec: Financial market

Change in Consumer Behaviour:
- Traditional Preference: Historically, households preferred banks for their savings.
- Current Trend: Increasing shift towards capital markets and other financial intermediaries.
Impact on Bank Deposits:
- Decline in Share: Bank deposits, while still dominant, are declining in percentage of household financial assets.
- Diversification: Savings are being increasingly allocated to Mutual Funds, Insurance Funds, and Pension Funds.
Implications for Banking Sector:
- Credit-Deposit Gap: Banks are turning to short-term borrowings and certificates of deposit to bridge the gap.
- Liquidity Management Challenges: Increased sensitivity to interest rate movements.
Need for Vigilance and Adaptation:
- CASA Deposits: Shift away from Current Account Savings Account deposits.
- Risk Management: Emphasis on improving credit underwriting standards and pricing of risks.
Learning from Global Banking Crises:
- US and Switzerland (2023): Highlighted risks and vulnerabilities in certain business models.
- Resilience Building: Importance of learning from these crises to enhance banking sector resilience.
Growth of F&O Trading:
- Unexpected Increase: Significant rise in F&O trading volumes and losses, especially among young investors.
Macro-Level Concerns:
- Economic Disruption: Household savings diverted to speculative activities rather than capital formation.
- Systemic Risk: The potential for a black-swan event and its implications on the capital market ecosystem.
Data-Driven Regulation:
- Flexible Approach: SEBI will adapt its views based on data and changing facts.
Statistics on F&O Trading:
Turnover Growth:
- Index options turnover increased from ₹4.5 lakh crore (2018) to ₹140 lakh crore (2024).
- Overall turnover in derivative segment increased from ₹210 lakh crore (2018) to ₹500 lakh crore (2024).
- Individual Investor Participation: Increased from 2% to 41% in the same period.

Derivatives and Their Types

Derivatives are financial instruments whose value is derived from an underlying asset. The price of a derivative changes in relation to changes in the value of the underlying asset. Derivatives are used primarily for hedging risks but can also be used for speculative purposes.

Futures

Exchange-traded contracts to buy or sell a specific amount of a commodity or financial instrument at a predetermined price at a specified time in the future.
Standardization: Futures contracts are standardized in terms of quality, quantity, and delivery time.
Trading: Highly liquid due to their standardization and presence on exchanges.
Use Case: Manufacturers can use futures to secure raw materials at set prices, mitigating the risk of price fluctuations.

Forwards

Customized contracts traded over-the-counter (OTC) between two parties to buy or sell an asset at a specified future date for a price agreed upon today.
Flexibility: Terms such as delivery date, price, and contract size are negotiable between the parties.
Execution: Generally held to maturity for actual delivery of the underlying asset.
Use Case: Typically used for hedging against price movements in commodities.

Swaps

Contracts in which two parties exchange cash flows or other financial instruments over a period of time.
Types: Common types include interest rate swaps and commodity swaps.
- Interest Rate Swap Example: One party pays a fixed rate while the other pays a floating rate.
- Commodity Swap Example: An airline company pays a fixed price for kerosene while a bank pays the spot price.
Use Case: Swaps are used to manage exposure to fluctuations in interest rates or commodity prices.

Options

Contracts that provide the holder the right, but not the obligation, to buy (call) or sell (put) an underlying asset at a predetermined price (strike price) within a specified time frame.
Types of Settlements:
- Physical Delivery: The underlying asset is delivered upon exercising the option.
- Cash Settlement: The difference between the spot price and the strike price is paid in cash.
Positions:
- In the Money (ITM): Strike price is more favorable than the spot price.
- At the Money (ATM): Strike price is equal to the spot price.
- Out of the Money (OTM): Strike price is less favorable than the spot price.
Use Case: Options are widely used for hedging purposes, offering the potential for profit with limited risk.

4. What is a PC emulator, and why did Apple allow it on the App Store?

Sub: Science and tech

Sec: Computer and IT

Context:

Apple has recently changed its policy to allow emulators on its official app store.
The move will allow users to run classic software, mostly games on iOS, iPadOS and visionOS.

What is an emulator for a PC?

An emulator, as the name suggests, is software that allows a computer device to emulate another software.
With the help of an emulator, a host system can run software, programs, which are designed for the guest system.
Emulators are commonly used to play video games from older consoles, and test software across different platforms.
Allowing emulators on its App Store could help the iPhone-maker ensure users do not use third-party app stores in the EU to download emulators.

Are PC emulators legal?

Using an emulator is considered legal if users own the software they are running on the emulator.
However, if users use the emulator to run pirated copies of a software or use the emulator to distribute or download ROMs of software they do not own, it is considered illegal.
Emulators are legal to use and distribute in India, users may land in trouble if they use emulators to run software such as games, operating systems, or applications) without the proper licenses or ownership.

What are the risks associated with the emulator?

If the emulator is downloaded from unofficial sources they can infect the host system with viruses.
Emulators can never provide the 100% accurate results guaranteed by real device testing.
Emulators can also impact the performance of a device since they are resource-intensive and may lead to decreased CPU performance, overheating, and potential damage to the battery.

5. Kerala issues technical guidelines for diagnosis, management of amoebic meningoencephalitis

Sub: Sci

Sec: Health

Context:

Kerala has issued technical guidelines for diagnosis, management of amoebic meningoencephalitis.
These guidelines/standard operating procedure (SOP) are to be followed by all hospitals when dealing with cases of acute meningitis.

More on news:

Five cases of Amoebic meningoencephalitis have been reported in adolescents in the State in the past three months and with three young lives lost.
These guidelines are possibly the first set of guidelines in the country on amoebic meningoencephalitis which is a fatal infection.

What is amoebic meningoencephalitis?

Primary Amoebic Meningoencephalitis (PAM) is a rare but often fatal infection of the brain caused by the amoeba Naegleria fowleri, commonly known as the “brain-eating amoeba.”
It is non-communicable.
The causative agent is Naegleria fowleri which is a free-living amoeba typically found in warm freshwater environments such as lakes, rivers, hot springs, and poorly maintained swimming pools.
The amoeba enters the human body through the nose, usually when people are swimming or diving in contaminated water.
Once inside the nose, the amoeba travels up the olfactory nerve to the brain, where it causes severe inflammation and destruction of brain tissue.
The disease progresses rapidly, often leading to death within about 5 days after the onset of symptoms.

What is the treatment for amoebic meningoencephalitis?

Treatment includes antimicrobial therapy typically involving a combination of drugs, including amphotericin B, rifampin, and miltefosine, among others.
The best drug regimen should include an amebicidal drug (or a combination of drugs) with good in vitro activity that is capable of crossing the blood-brain barrier.

What are the recommended SOP?

A history of nasal exposure to fresh water in the 14 days before symptom onset should be asked of any patient who presents with symptoms of acute meningitis.
For patients with meningitis who have a history of recent nasal exposure to fresh water, the cerebro-spinal fluid (CSF) specimen should undergo rapid testing for N. fowleri/FLA .
All cases diagnosed as PAM through CSF microscopy should be immediately initiated on the recommended multi-drug regimen and supportive therapy.
All cases of PAM should be treated by a multidisciplinary team comprising physicians / pediatricians, intensivists, ID specialists, neurologists and microbiologists.

6. Children win with U-WIN, govt’s new online vaccine portal

Subject: Sci

Sec: Health

Context:

On the government’s 100-day health agenda is the countrywide rollout of U-WIN, an online vaccine management portal for childhood vaccination.

More about News:

With digitised and individualised immunisation records since birth, the government hopes to identify and reach the small proportion of children currently outside its vaccine net.

U-WIN:

Children, up to the age of six years, and pregnant mothers are registered on U-WIN using government ID like Aadhaar , and their mobile phone numbers.
Upon registration, records of all 25 shots given to a child — and the two given to pregnant mothers — can be added.
The platform generates a checkered vaccination certificate that colour codes all vaccines. After each shot is administered (and recorded on U-WIN), its date gets added to the card, which also shows the due date for the next set of vaccines , also sends SMS reminders to parents before their children are due for the next dose.
Digital vaccine certificate — which can be downloaded by parents using their registered mobile numbers — does away with the need to maintain the physical vaccination booklet, and allows one to get vaccinated anywhere in the country.
To locate the nearest vaccination centre, and book an available slot.
As for health workers, the platform can automatically generate a due-list of children in their respective areas.
Once the database matures, U-WIN will allow the government to study micro-trends across areas.
Registers all births, the three vaccines against polio, hepatitis B, and tuberculosis administered at birth, a child’s birth weight, and any physical deformities observed at birth.
These data-points can be utilised by other government programmes as well — the idea is to eventually connect all digital records through ABHA (Ayushman Bharat Health Account) ID.
U-WIN will also be linked to the government’s existing eVIN platform for inventory management. eVIN tracks all vaccine vials, from large central stores to each vaccination site in the country.
It keeps track of the number of doses used, the number of doses that go to waste, and the number of open vials that are submitted back by the sites, and is used by sites to raise demands for vaccines.

How will U-WIN help with immunisation?

Reminders that U-WIN will furnish to parents are likely to improve compliance.
Ensure portability — children who have received their first vaccines in one village/city can receive the rest of the doses elsewhere in the country. This will be especially useful to ensure that children of migrant workers do not drop out.
The portal might help reduce errors.
U-WIN will provide granular, individualised details of childhood immunisation across the country.

7. State cannot claim ‘serious charges’ to oppose bail, says Supreme Court

Subject: Polity

Sec: Constitution

Context:

A Bench of Justices J.B. Pardiwala and Ujjal Bhuyan ordered Sheikh Javed Iqbal, a man awaiting trial under the Unlawful Activities Prevention Act (UAPA) for nine years, to be released on bail, in yet another back-to-back decision which upheld the right of an individual’s personal liberty over the state’s claim that bail should not be made easy when serious crimes were involved.

More about News:

Bail cannot be denied only on the ground that the charges are very serious though there is no end in sight for the trial to conclude.
The man was arrested near the Indo-Nepal border in February 2015 allegedly with fake Indian currency notes amounting to over ₹23 lakh. He has been behind bars since then. The man appealed to the Supreme Court after the Allahabad High Court denied him bail.
Article 21 of the Constitution applies irrespective of the nature of the crime.
While imposing bail conditions, the constitutional rights of an accused ordered to be released on bail can be curtailed only to the minimum extent required.

Unlawful Activities (Prevention) Act:

UAPA was passed in 1967.
It aims at effective prevention of unlawful activities associations in India.
Unlawful activity refers to any action taken by an individual or association intended to disrupt the territorial integrity and sovereignty of India.
The Act assigns absolute power to the central government, by way of which if the Centre deems an activity as unlawful then it may, by way of an Official Gazette, declare it so.
It has death penalty and life imprisonment as highest punishments.
Under UAPA, both Indian and foreign nationals can be charged. It will be applicable to the offenders in the same manner, even if crime is committed on a foreign land, outside India.
Under the UAPA, the investigating agency can file a charge sheet in maximum 180 days after the arrests and the duration can be extended further after intimating the court.
The 2004 amendment, added “terrorist act” to the list of offences to ban organisations for terrorist activities, under which 34 outfits were banned.
Till 2004, “unlawful” activities referred to actions related to secession and cession of territory.
Parliament cleared the Unlawful Activities (Prevention) Amendment Bill, 2019 to designate individuals as terrorist son certain grounds provided in the Act.
The Act empowers the Director General of National Investigation Agency (NIA) to grant approval of seizure or attachment of property when the case is investigated by the said agency.
The Act empowers the officers of the NIA, of the rank of Inspector or above, to investigate cases of terrorism in addition to those conducted by the DSP or ACP or above rank officer in the state.

Article 21:

“Protection of Life and Personal Liberty: No person shall be deprived of his life or personal liberty except according to procedure established by law.”
This fundamental right is available to every person, citizens and foreigners
Article 21 provides two rights:
- Right to life
- Right to personal liberty
The Supreme Court of India has described this right as the ‘heart of fundamental rights’.

8. Role of Rajasthan’s tribal communities in meeting global challenges highlighted at U.N. event

Subject: IR

Sec: Int Org

Context:

The best practices of tribal communities highlighted at the forum included the production of local seeds, water conservation at source, use of animals in agriculture, checking soil erosion through mixed cropping, and the use of uncultivated food for nutritional security.

More about News:

Tribal women farmers in southern Rajasthan take a pledge to protect their traditional practices to advance the 2030 agenda for SDGs.
The solutions offered by indigenous tribal communities in Rajasthan to global challenges, and their role in the execution of policies were highlighted at the High-Level Political Forum (HLPF) on Sustainable Development at the United Nations headquarters in New York.
The forum was held under the auspices of the U.N. Economic and Social Council (ECOSOC) with the theme, ‘Reinforcing the 2030 agenda and eradicating poverty in times of multiple crises: The effective delivery of sustainable, resilient and innovative solutions. A ministerial declaration adopted at the forum called for renewed impetus to achieve the Sustainable Development Goals (SDGs).
The tribals in Rajasthan had adopted an innovative approach guided by sustainable and resilient solutions across environmental, social, cultural, and economic systems.
“Drawing from the principles of swaraj(sovereignty), tribals’ lifestyle and cultural values have led to self-sufficiency, less dependence on external sources, and enhanced agricultural practices, which ensure food, nutrition and livelihood security for their families,”.
The initiatives based on seed sovereignty, soil sovereignty, food and nutrition sovereignty, water sovereignty and cultural sovereignty had empowered tribal communities in the State to collectively overcome critical challenge.

Sustainable Development Goals:

Goal 1. End poverty in all its forms everywhere
Goal 2. End hunger, achieve food security and improved nutrition and promote sustainable agriculture
Goal 3. Ensure healthy lives and promote well-being for all at all ages
Goal 4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
Goal 5. Achieve gender equality and empower all women and girls
Goal 6. Ensure availability and sustainable management of water and sanitation for all
Goal 7. Ensure access to affordable, reliable, sustainable and modern energy for all
Goal 8. Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all
Goal 9. Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation
Goal 10. Reduce inequality within and among countries
Goal 11. Make cities and human settlements inclusive, safe, resilient and sustainable
Goal 12. Ensure sustainable consumption and production patterns
Goal 13. Take urgent action to combat climate change and its impacts*
Goal 14. Conserve and sustainably use the oceans, seas and marine resources for sustainable development
Goal 15. Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss
Goal 16. Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels
Goal 17. Strengthen the means of implementation and revitalize the global partnership for sustainable development

Economic and Social Council (ECOSOC)

It coordinates the work of the 14 UN specialized agencies, ten functional commissions and five regional commissions, receives reports from nine UN funds and programmes (see reverse) and issues policy recommendations to the UN system and to Member States.
Under the UN Charter, ECOSOC is responsible for promoting higher standards of living, full employment, and economic and social progress; identifying solutions to international economic, social and health problems; facilitating international cultural and educational cooperation; and encouraging universal respect for human rights and fundamental freedoms. ECOSOC’s purview extends over 70 per cent of the human and financial resources of the entire UN system. The Council’s 54 member Governments are elected by the General Assembly for three-year terms. In carrying out its mandate, ECOSOC consults with academics, business sector representatives and more than 2,500 registered non-governmental organizations.
The Council holds a four-week substantive session each July, alternating between New York and Geneva. The session includes a high-level segment, at which national cabinet ministers and chiefs of international agencies and other high officials focus their attention on a selected theme of global significance. This year, the 29 June–1 July segment, chaired by ECOSOC President Munir Akram (Pakistan), will focus on progress made and challenges encountered in efforts to meet international development targets, including those in the Millennium Declaration

9. PPF Returns Still Languishing Lower than Formula-Based Rates

Sub: Eco

Sec: Monetary Policy

Interest Rates Below Formula-Based Rates:
- The Public Provident Fund (PPF) and five-year recurring deposits (RD) are earning rates lower than the formula-based system adopted since April 2016.
- PPF Rate Static at 7.1% since April 2020.
- Five-Year RD Rate gradually increased from 5.8% to 6.7% in the first three quarters of 2023-24.
RBI’s Observation:
- RBI noted that PPF returns were 41 basis points (bps) lower than the formula-based rates for October to December 2023.
- Five-year RD rates were 21 bps lower than the formula-based rates for the same period.
Formula for Quarterly Rate Resets:
- A panel led by former RBI Deputy Governor Shyamala Gopinath linked small savings rates to secondary market yields on government securities of comparable maturities.
Historical Rate Adjustments:
- Last PPF rate hike in October 2018 to 8%, reduced to 7.9% in July 2019, and further slashed to 7.1% in 2020-21.
- Government reduced rates on all small savings instruments in the range of 50 to 140 bps at the onset of 2020-21.
Recent Rate Hikes Before Elections:
- Sukanya Samriddhi Account Scheme (SSAS): Rate raised from 8% to 8.2%.
- Three-Year Time Deposit: Rate increased from 7% to 7.1%.
- No changes in PPF rate despite successive rate hikes on other small savings schemes.
Current Status:
- Rates on most small savings schemes are aligned with formula-based rates except for PPF and five-year RD.
- The gap between the formula-based rate and the PPF and five-year RD rates was not quantified in the latest RBI report.
Tax-Free Scheme Defense:
- Finance Ministry defends PPF rate stasis by emphasizing its tax-free status, offering higher tax-adjusted returns.
- Similar tax treatment for SSAS, which had its rate frozen at 7.6% from April 2020 to March 2023, then raised to 8% last April and 8.2% from January 2024.

10. S&P 500’s 7 Shooting Stars

Sub: Eco

Sec : Capital markets

High Interest Rates and Stock Performance:

Typical Correlation: Historically high interest rates are generally associated with poor stock performance.
- Reason: Higher interest rates lead to higher borrowing costs and lower business profits.
- Risk-Free Rate Impact: As the risk-free rate rises, the expected return on equities also rises, adding downward pressure on stock prices.

Current Scenario:

Unusual Trend: Despite a rise in U.S. interest rates to 5.5% (the highest in over 20 years), the S&P 500 has shown a remarkable return of 24.5% over the past 12 months.
Key Drivers: This unexpected performance is driven primarily by the “magnificent seven” tech giants: Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta, and Tesla.

Performance Analysis:

Magnificent Seven:
- Nvidia: Posted an extraordinary rally of over 172% in the past year.
- Meta: Achieved a 59% increase.
- Amazon: Saw a 45% increase.
- Alphabet: Recorded a 50.5% increase.
Overall Impact: These companies significantly inflated the S&P 500’s overall return.

S&P 500 vs. S&P 500 Equal Weight Index:

Equal Weight Index: This index, which gives equal weight to all constituents regardless of market cap, posted a more modest return of 10.7%.
Weighting Methodology:
- Free-Float Market Capitalisation-Weighted: The S&P 500 gives more weight to companies with larger market caps.
- Positive Feedback Loop: Successful companies attract more passive investment flows, further boosting their stock prices.

Sector Performance:

Lagging Sectors: Most sectors, particularly those dependent on interest rate cycles like real estate, posted poor returns.
Tech and AI Focus: Chip-making and technology companies have outperformed due to the positive attention surrounding artificial intelligence (AI).

AI Investment Caution:

Critical Questions: Despite advancements in generative AI, investors should exercise caution.
- High Costs: AI capacity is expensive to build, implement, and run.
- Lack of Network Effects: Unlike social media platforms, AI does not currently benefit from network effects.
- Uncertain Use Cases: The actual use case and long-term value proposition of AI technology remain unclear.

11. SEBI’s Proposal for a New Investment Product Between Mutual Funds and PMS

Sub: Eco

Sec: Capital markets

SEBI’s New Proposal:

Introduction: SEBI is considering a new investment product that lies between mutual funds (MFs) and portfolio management services (PMS).
Objective: To provide investors with a new avenue to diversify their portfolios by investing in various asset classes, including equities, bonds, and their derivatives.

Understanding Asset Classes and Investment Strategies

Asset Classes:

A group of securities with similar characteristics, market behavior, and regulations.
Primary Asset Classes:
- Equities: Shares of companies listed on stock exchanges.
- Bonds: Interest-bearing securities from governments, municipalities, or corporations.
- Real Estate: Physical properties like land and buildings.
- Commodities: Physical goods such as gold, oil, and agricultural products.
- Currencies: Investments in foreign currencies.
Alternative Asset Classes:
- Private Equity: Investments in shares of unlisted companies.
- Hedge Funds: Investment funds employing various strategies for active returns.
- Others: Includes antiques, collectibles, and other non-traditional investments.

Asset Allocation: The Key to Investment Success

Asset Allocation:
- Definition: Dividing an investment portfolio among different asset categories like stocks, bonds, and cash.
- Importance: Crucial for meeting financial goals; the key determinant of investment results.
- Strategy Example: Allocate 60% of savings to equities and 40% to bonds, with further diversification within those classes.

SEBI’s Proposed Investment Vehicle

Positioning: A new investment product designed to bridge the gap between mutual funds and PMS.
Objective: To offer a diversified investment vehicle giving access to multiple asset classes.
Features:
- Diversification: Reduces risk and enhances returns by investing in a mix of asset classes.
- Flexibility: Offers more personalized strategies compared to mutual funds, yet more accessible than PMS.
- Accessibility: Middle ground for investors wanting more than mutual funds but without the higher entry barriers of PMS.

Conclusion

Understanding Distinctions: Knowing the difference between asset classes and investment strategies is crucial.
SEBI’s Product Aim: Provide a new, diversified investment option to help achieve financial goals.
Investment Strategy: Choose the right mix of assets and investment vehicles for robust portfolios balancing risk and return.