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The effects of interest rate volatilities on the demand of Turkish money - Essay Example
Author : xnikolaus
Finance & Accounting
Pages 18 (4518 words)
The aim of this study is to examine the effects of interest rate volatilities on the demand of Turkish money. The Turkish money is Lira. The period that has been taken for analysis is 1990 – 2000. Interest rates are predicted on time deposits and treasury bills. …
This study aims to look at, particularly the possessions of interest rate volatilities in case of Turkey along with customary factors influencing the demand for money. Because the raise in interest rate volatility is probable to lead structural variations in the formation of behavioral dealings which defines economic sector. It will also really influence the demand for cash. Other than, it must be strained here that the nominal interest rate contains two parts: Expected rate of inflation and an expected real rate of return. Interest rate volatility is a very important factor in determining a healthy monetary policy for the economy. It is important to identify the factors that create the demand for money. The period of 1990s saw the banking sector in Turkey highly dominated by public banks, which were inefficient in its activities. The Turkish bank sector had a large number of serious discrepancies and deficiencies such as large risks in foreign currency, interest rates and liquidity in the banking sector. During the decided investigation period of 1990-2000s, the increase in GDP was only 2.5 per cent in Turkey. The banking sector in Turkey was deficient of good governance and the economic environment in which the banks existed brought severe economic losses to the bank. “The credits-to-total assets ratio declined from 47 percent to 32.8 percent between 1990 and 2000”. There was also a decrease of around 50 – 80% in the credits to deposit ratio in the Turkish banks. The Turkish banking sector was regulated and supervised by the coordination and cooperation of two authorities, the treasury and the central bank of Turkey. ...