Essays on Levels of Interest Rates in the Markets Case Study

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The paper 'Levels оf Interest Rаtes in the Mаrkets' is a wonderful example of a financial and accounting case study. The inflation rate as well as the interest rate expectation as well as companies are significant variables that determine the price of the bond. They are important in establishing the level of consumption. the debt level as the general trend in economic situation worldwide. Where there is a high inflation rate, there will be growth in nominal interest rates and hence reducing the price of the bond and the interest rates will move in the opposite directions.

The market anticipation concerning the future interest rate will growth or decline which depicts an effect on the yield curve and hence effective the interest rate for the debt securities. The implications of the observed levels of interest rates due  to low-interest rate, the net returns on short term financial instruments are merged sometimes. The money market fund in this situation will experience withdrawal. Against the backdrop of reduction in assets under management at money market funds, the amount of liquidity existing for the MMMF bank’ s purchases of debt securities will fade as well. This situation might hence lead to further restrictions on credit institution right of entry to financing.

In this regard, the governing council verdict to reduce the interest rate on ECB deposit facilities to zero triggered some concern that more reduction in money management may lead to an intensification of pressure on money management funds with potential negative impact for the banks financing circumstance (Jan Peil). Besides this, imminent polices requirement concerning the bank’ s financing plans will depict a favor to retain financing over market-based financing.

This development may hence weight on banks' security-based financing efforts. The banking industry seems to have forecasted this progression by entreating and upheld the retail deposits stems from money holding divisions and align the risky nonbank resources. The respective flow eventually leads to enhancement in the bank's financing situation. Money demand at very low-interest rates hypothetical considerations recommends that extrapolation of money demand tendency that has been depicted within the range of normal level of interest rates to the case in which the interest rate approach will be zero may not provide dependable information.

Nevertheless, the likelihood of money demand might be subject to substantial changes as interest rates turn to be very low having a significant effect on monetary policy (Morton). This is due to the fact that a typical growth in money holding as interest rates approach to zero might be incorrectly interpreted as a sign of a change of monetary stimulus and thus the growth of expansionary pressure, when in reality it might depict a change in custom money demand tendency. Hypothetical proof for the effect of low policy rates over a certain time is limited but is existing for instance in us and Japan.

Research provides that new funds tend to be placed in a long term and risky asset to benefit from these assets yield pick up. There is no hypothetical sings of large scale stock adjustment out of monetary debt that might put financial institution under financial distress.

References

Aravossis, Kennedy. "Environmental Economics and Investment Assessment." Financial Times (2006).

Arrunada, Benito. "The Economics of Audit Quality: Private Incentives." Bloomberg (2013).

Hubbard, Glenn. "Essentials of Economics - Page 453." The economist (2012).

Jan Peil, ‎Irene van Staveren. "Handbook of Economics and Ethics." Journal of economics (2009).

Morton, John. "Advanced Placement Economics: Macroeconomics :." Financial times (2003).

sexton, Robert. "Principles of Economics Volume 2 of 2 - Page 744." Wallstreet journal (2014).

Weber, Edward. "A short history of derivative security markets. Crawley." University of Western Australia, Business School, Economics Program (2008).

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