Interest Rate Markets Quiz 1: Difference between revisions

Revision as of 23:56, 25 July 2008

expectations

premium

segmenation

The debt securities market consists of

and investors who negotiate the

at which the investor lends money to the

.

In Australia there are two distinct segments to the debt market: the

-

securities market ( often called the money market ) and the

-

securities market ( often called the fixed interest market ).

Money market instruments generally do not have any

and mature in

than one

.

Fixed interest securities have maturities of greater than one

and have regular

flows called

.

short-term	long-term
		indexed securities
		Commonwealth Government bonds
		cash
		semi-government loans (semis)
		promissory notes (PNs) or commercial paper (CP)
		bank transferable certificates of deposit
		bank endorsed bills of exchange
		corporate bonds
		commercial bills
		asset-backed securities
		bank-accepted bills of exchange
		floating-rate notes and bonds
		Treasury Notes (TNs)
		certificates of deposit (CDs)

The

debt market is made up of all the individual private investors with their relatively

amounts of money.

The

debt market consists of the large pool of funds gathered together from the retail market. The participants are financial

and

corporations (professional investors).

Financial markets have two sub-markets:

* a

market where new securities are issued

* a

market where existing securities are traded.

Short-term and long-term securities may be issued on the primary market by:

*

/

*

placement

*

panels

*

loan

The basic objective of trading debt securities on the secondary market is to profit from

.

bonds provide the

for evaluating yields on other fixed interest securities.

The price paid for the use of money is the

.

The RBA uses monetary policy to influence the

of

and the

of

in the economy.

A tightening of monetary policy

liquidity in the financial system and in the short term puts

pressure on interest rates. As this will tend to

inflation, this policy in the longer term will lead to an

of interest rates. Conversely, an easing of monetary policy will

interest rates in the short term and may lead to an

in the longer term.

funds theory assumes an equilibrium interest rate is set by supply an demand being in balance.

The

equation explains the relationship between interest rates, inflation and the real rate of return mathematically.

states that the interest rates between countries vary only be expected exchange rate movements.

An increase in the level of inflation puts upward pressure on interest rates as:

* production costs

, making Australian products

competitive

* the real rate of return on investment

and hence investors will require

interest rates to compensate for this loss.

* wages

and hence the price of producing goods

this can lead to spiraling

.

If plans to borrow exceed plans to lend, interest rates may

. If plans to borrow fall short of plans to lend, interest rates may

.

is an important indicator of how short-term interest rates will move.

Approaches to interest rate forecasting include:

*

analysis

*

forecasting

*

modelling

*

analysis

There are four components to building an interest rate forecast:

* assessment of

* creating an

* the

forecasts

* strategy and

Next quiz Interest Rate Markets Quiz 2

@@ Line 9: / Line 9: @@
 {
 |type="{}"}
-{ The debt securities market consists of { borrowers } and investors who negotiate the { interest } { rate } at which the investor lends money to the { borrower }.
+The debt securities market consists of { borrowers } and investors who negotiate the { interest } { rate } at which the investor lends money to the { borrower }.
 {
@@ Line 78: / Line 78: @@
 {
 |type="{}"}
-A tightening of monetary policy { reduces } liquidity in the financial system and in the short term puts { upward } pressure on interest rates. As this will tend to { reduce } inflation, this policy in the longer term will lread to an { easing } of interest rates.  Conversely, an easing of monetary policy will { lower } interest rates in the short term and may lead to an { increase } in the longer term.
+A tightening of monetary policy { reduces } liquidity in the financial system and in the short term puts { upward } pressure on interest rates. As this will tend to { reduce } inflation, this policy in the longer term will lead to an { easing } of interest rates.  Conversely, an easing of monetary policy will { lower } interest rates in the short term and may lead to an { increase } in the longer term.
 {
@@ Line 123: / Line 123: @@
 * the { interest } { rate } forecasts
 * strategy and { implementation }
 </quiz>
 Next quiz [[Interest Rate Markets Quiz 2]]