Other research has offered a concrete evidence favoring instability in the yield curve of the United States. The evidence is referenced with a rising theory on the side of macroeconomic where the inflation dynamic and real activity was characterized by significant period variation in various industrialized economies. The function of this paper double folds. First, the paper assesses the extent of period variation in the changes of some yield curve and macroeconomic variables. Secondly, the paper investigates if the term structure analysis can shed new dimensions of the performance of UK macroeconomic of the last five years. It is emphasized that various present studies have analyzed the UK macro economy dynamics and its term structure in situ. There is also a systematic investigation on the evolution of the connection between the yield curve and the economy over time. The paper specifies the relationship between finance and macro like in Nelson-Siegel model UK yield curve from 2008-2012 Financial Instrument for the Yield Curves Gilt-edged securities Normal gilt is a sure way by the nation to make payments of the guilt. A fixed cash payment is made semi-annually until a maturity date is attained. At maturity, the holder receives the terminal coupon and the principal. The index-linked gilt is generated to protect the investment value (Mishkin, 2012). General Collateral sale and repurchase agreement The transactions of selling and repurchasing involve the temporal exchange of gilt and cash between partners; gilts are used as collaterals. The fund ‘slender will hold gilt as collateral, so is safeguarded when the borrower defaults. The repo of the General Collateral is the rated for repurchasing agreement where gilt may be utilized as collateral. Therefore, the General collateral was closer to the risk-free rates. The contracts of Repo are traded actively for maturities annually. The rates prevailing on the Repo contracts are equal to the yields of the conventional gilts maturity (Ritter , Silber, Udell ", 2009). Interbank loans An interbank loan is a loan where the lender receives a certain agreed sum at call. The loan was not tradable. The offer rate was the interest rate the bank was willing to lend cash to financial institutions. The offer rate was calculated by mean of the medium offer rates that was collected at 11 am from 16 financial institutions. Short sterling future A short sterling contract was the future contract of sterling interest rate that settled on the LIBOR rate that prevailed on the delivery date of the contract. The contracts were traded and standardized between the Options Exchange and London International Financial Future members. Forward rate agreement This is the Over the Counter contract where the counter parties decide to exchange the difference in the LIBOR rate and agreed interest rate. We calculated the payment against the principal. The instrument allowed organizations to be held in future lending rates and interbank borrowing. Unlike the future contracts, the instrument was a bilateral agreement having no secondary market (Madura ", 2008). Swaps This is where the two counterparts decide to exchange the payments of interest rates for payments of floating interest rates, based on the notional principal at the beginning of successive periods. The instrument was equal to a
FINANCIAL mARKETS AND mONETARY THEORY (Author’s name) (Institutional Affiliation) Key words: Monetary Policy, Financial Market Term Structure of Interest Rates The interest rates’ term structure and economy are closely related. Conversely, the anticipations of real activity and future inflation can be crucial in determining the yield curve…
Financial markets are further divided into money markets and capital markets. Money markets deal in securities with a maturity date within one year. Capital markets mature in longer time frames. Bonds are debts with a maturity date, the investor loaned the business money. A stock has no maturity date; the investor owns a portion of the business.
One of these important functions includes the regulation of money supply in the country. This is dealt by the monetary policy of that particular country that has its limitations and demand serious attention from not only the policy makers but also the public who would have to follow these policies.
This starts from the macro and the micro levels of the economy (Stationery Office, 2006 p. 34). The economic stability of a country/state depends on the effectiveness of economic policies advanced in order to regulate the fiscal activities within the country and at the international levels.
Question 1: Covert action has regularly been typified as the “middle option” or “quiet approach” detailing a wide spectrum of activities including propaganda, lethal action, political/economic action, and paramilitary operations. Kennan played a critical role in the development of NSC10/2: Office of Special Projects, as well as in the broadening of these activities in the years 1948-1950.1 In 1978, President Jimmy Carter issued an Executive order that outlined covert action as operations undertaken abroad in pursuit of national foreign policy goals, which are structured to propel official U.S.
The markets are however characteristically distinct by taking the clear pricing, the basic rules and guidelines for trading, expenses and fees and the market powers that determine the amounts of securities that are able to trade. However, some financial marketplaces are only giving authority to participants that meet positive standards, which in this case can be found on the issues like the quantity of money that is held, the depositor's physical location, the information of the marketplaces or the occupation of the member.
The rationale behind the formation of this association was creation of a strong single European market that would be beneficial for the wholesome economic development of all the member countries, to promote social unity among the people and most importantly, to enhance the prominence of Europe in the global economy (University of Iowa College of Law Center for International Finance and Development, 2013).
It is basically a type of stabilization policy adopted by countries to achieve goals like price stability and high employment rates, enhancing economic growth rates and controlling imbalances in external payments, including the protection of the external purchasing power of the currency through maintaining relatively stable levels of exchange rates.
Monetary Policy is a means to control inflation, one of the corrective tools of the Central Bank of a country. Presence of inflation in the current market and expected future requires the need for such a policy to ensure that inflation rates do not go above a specific percentage thus acting as a tool to curb inflation.
The safety for giving loans can be among the list of the authentic collaterals which are transacted as overnight Repos that might be very expensive to banks at times (Capie, 2010, p. 510).
The official bank
With new developments and unabated innovations, many people are considering it outmoded for cash to exchange hands, a reason that is compelling many people to anticipate a cashless society.
12 pages (3000 words)Term Paper
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