Essays on Money Market Interest Rates in Australia and New Zealand Case Study

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The paper "Money Market Interest Rates in Australia and New Zealand" is a good example of a micro and macroeconomic case study. The money  market is a section of the financial market where financial instruments with short maturities and whose liquidity is high are traded. Participants in the money market use it is an avenue for borrowing as well as lending in the short term. Securities in the money market are comprised of certificates of deposits, treasury bills, repurchase agreements, bankers’ acceptances, commercial papers, repurchase agreements and municipal notes (RBA 1990). Reserve banks can also influence the interest rates of the money supply.

If there is too much money circulating in the economy inflation level may tend to raise which may increase the general prices of goods and services in the economy. To avoid high levels of inflation a monetary policy that would reduce the flow of money between the lenders and the borrowers would be considered. This may be achieved through interest rates regulation where the reserve banks in these countries raise lending rates to commercial banks and consequently it becomes difficult for borrowers to access funds through commercial banks due to high-interest rates.

The flow of finances between the borrowers and the lenders is regulated through limiting credit accessed by commercial banks for lending (Viney, 2009). 3.0: Historical money market interest rates 3.1: New Zealand From 1985 to 2013 interested rates in New Zealand Interest Rates have averaged at 8.5%, with the highest percentage of 67.32% recorded in March 1985 and the lowest in April 2009 which was 2.5%. Interest rates in New Zealand are determined by the Reserve Bank of New Zealand (RBNZ).

Official Interest Rates (OCR) in New Zealand are considered as the authorized interest. In March 1999, OCR was established and since then the bank undertakes to review it eight times per year (Mishkin & Eakins, 2006). OCR controls the money-borrowing price in New Zealand and this enables the reserve bank to control the level of inflation and economic activities in the country.

References

Brooks, R.D. and Faff, R.W. (1997) ‘Financial Deregulation and Relative Risk of Australian Industry’, Australian Economic Papers, Vol. 36, December, pp. 308–320.

Elyasiani, E. and Mansur, I. (1998) ‘Sensitivity of the Bank Stock Returns Distribution to Changes in the Level and Volatility of Interest Rates: A GARCH-M Model’, Journal of Banking and Finance, Vol. 22, pp. 535–563.

Viney, C., (2009). McGrath’s Financial Institutions, Instruments & Markets (6th ed.) The McGraw-Hill Companies

Kidwell, D. S, Brimble, M., Beal D. & Willis, D. (2007). Financial markets institutions and money. John Wiley & Sons Australia, Ltd.

Lewis, M.K., & Wallace, R. H. (1997). The Australian financial system. South Melbourne: Longman.

Mishkin F. S., & Eakins S. G. (2006). Financial markets and institutions (6th ed.). Boston: Addison Wesley.

Reserve Bank of Australia (RBA), Bulletins and Annual Reports, 1990 onwards.

Valentine, T., Ford G., Edwards V., Sundmacher, M., & Copp, R. (2006). Financial markets and institutions in Australia (2nd ed.). Frenchs Forest: Pearson Education

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