Abstract The paper shows that bank interestrates have been steadily decreasing since the September 11th attack on America and that the attack caused the business failures of major corporations, such as World Com and Enron. It discusses that one of the areas that are going stronger then ever is the real estate industry and many homeowners are taking the option to refinance their homes. The paper shows that banks and financial institutions are not in favor of this procedure as a homeowner who refinances his house may lower his monthly payments several hundred dollars - banks are making significantly less money on the lowered monthly payments through refinances. The purpose of the essay is to discuss how the lowered interestrates are affecting the housing industry.
From the Paper "House sales are running a record high this year, according to Reaser, chief economist of Bank of America. The refinancing of mortgages is supporting a major portion of the economy that is surviving and thriving. At the present time, refinancing is showing no signs of slowing down; in fact it is steadily increasing. People are putting the extra money into home improvements and buying new cars, another low interest financing option."
Abstract This paper analyzes the housingmarket in California and discusses whether it is overvalued. The paper looks at additional costs associated with purchasing a home and concludes that housing prices in California are high and spiraling upward.
Abstract The paper aims to identify the relationship between changes in interestrates and their impact on the UK housingmarket. The paper presents the hypothesis that the lower the prevailing interestrate, the more non-homeowners will seek out mortgages for their own homes, but that there would be other mitigating factors involved as well. The paper provides a summary of the findings in the concluding chapter, together with limitations of the research encountered and a discussion of the hypothesis confirmation based on previous research.
Outline:
Abstract
Chapter 1: Introduction
Chapter 2: Review of Related Literature
Chapter 3: InterestsRates and the UK HousingMarket Chapter 4: Methodology
Chapter 5: Data Analysis, Tests and Results
Chapter 6: Discussion and Evaluation
Chapter 7: Conclusions, Limitations of Research, Hypothesis and Previous Research
From the Paper "During the past two decades, the United Kingdom has been transformed from a nation of renters and leasers into a nation of home-owners. While the analysts differ on the opinions concerning the precise reasons for this transformation, the fact remains there was a significant increase in home ownership experienced during the period between the early 1980s and the late 1990s. During this same period, interest rates have varied sharply, but their precise impact on the UK housing market remains understudied and nebulous."
A study of how the arbitrage pricing theory is typically used to model economic risk and market behaviors in general, with a view to how these applied to China and Hong Kong in particular.
Abstract This paper attempts to determine how effective the arbitrary pricing theory can be when it is applied to the current situation in Hong Kong to identify the market return and any possible macroeconomic factors such as interestrates, stock market indexes, GDP, inflation rate. The paper accomplishes this through an analysis of empirical studies and a review of current and chronological macroeconomic indicators for Hong Kong.
Outline:
Chapter 1: Introduction
Statement of the Problem
Purpose of Study
Importance of Study
Scope of Study
Rationale of Study
Overview of Study
Chapter 2: Review of Related Literature
Chapter 3: Methodology
Description of the Study Approach
Data-Gathering Method and Database of Study
Chapter 4: Data Analysis
Chapter 5: Summary, Conclusions, Recommendations and Reflections
From the Paper "Modern economics - and society - requires well-established laws to function efficiently. In this regard, the first law of economics is clearly the law of supply and demand, but the "law of one price" (hereafter simply "the Law") also plays an important role as well. While economic theory suggests that these processes will be maintained precisely in competitive markets with no transactions costs and no barriers to trade, in real world setting, details concerning market institutions are also important in determining whether disruptions in the law of supply and demand can occur (Lamont & Thaler, 2003). Many economists have traditionally assumed that the Law could be applied almost exactly in financial markets because of the workings of arbitrage. In this regard, these authors define arbitrage as "the simultaneous buying and selling of the same security for two different prices, is perhaps the most crucial concept of modern finance" (Lamont & Thaler, 2003, p. 191). "
Abstract This paper examines how interestrates in the financial community affect the consumer and the stockholder. Investment strategies are also briefly investigated, with an emphasis on how interestrates indicate the performance of stocks in a long- term investment plan. It is hoped that through providing enough information on how interestrates affect the consumer, the reader will be better equipped to make informed discussions on the subject.
From the Paper "Interest rates are essentially the rate of change in the economic community that expresses how the financial institutions are performing. They also act as incentives for the consumer, where if the interest rates are higher the customer is more likely to invest their funds. Interest rates are not stagnant, and change to reflect the current state of the market. As the consumer benefits more when he or she invests at a time where the rates are higher, the consumer is more likely to invest at that particular time."
Abstract This paper discusses the theory of covered interestrate parity which states that the prices from risk free assets with identical maturity should be equated across countries, after translation into a common currency. In other words, a risk free asset should cost the same dollar amount whether purchased in $US or some other currency. It tests the theory by analyzing empirical evidence to test whether the theory has held over the eighteen year period, 1980 to 1998. All the data used in empirical testing is presented in the appendix.
From the Paper "The theory behind uncovered interest rate parity is that
foreign exchange markets are so efficient that the expected future spot exchange rate for a particular currency will, on average, equal the present forward exchange rate. This result is theoretically due to the fact that information is quickly reflected in both the spot and forward exchange markets, that transaction costs are low or nonexistent, and that instruments denominated in different currencies are perfect substitutes for one another (University of Colorado, 2000, p.7)."
Abstract This paper studies the issues related to providing affordable and/or low-cost senior housing. The paper generally examines the social welfare policies of the United States and the distribution of resources. The paper also looks at various kinds of living arrangements of the elderly population.
From the Paper "The challenge of providing the elderly population with affordable and/or low-cost housing has been a feature of public policy debate for many years. That is because of a significant demographic shift in the population with more than..."
Abstract yThis paper discusses indepth the state of the economy in context of the rise and then consistent drop in interestrates over the last 5 years. It discusses what the impact is such rate cuts is on all aspects of the economy and also highlights the various kinds of interestrates.
Table of Contents
Introduction
Overview of InterestRates and their Significance as a Macroeconomic Tool
Types of InterestRates Impact of Change in InterestRates on the Current Economy
Conclusion
References
From the Paper "The Federal Reserve like other Central Banks seeks to maintain a financial environment within which competitive markets support the efficient use of productive resources. The overarching principle is that central bank should provide the necessary monetary and fiscal stability in a way that leaves the maximum freedom of action to private markets. In keeping with this principle, monetary policy is implemented by indirect means, with an interest rate policy instrument than with direct credit controls. Thus interest rates are part of the Federal Reserve's key macroeconomic tools that it has at its disposal to control the markets? and inadvertently the entire economies money supply. The quantity of money within an economy can determine various exogenous and endogenous factors that can keep the markets and the economy in close range of the equilibrium position. This is important in-order to prevent the extensive number of boom and bust cycles the American economy has faced in the early part of the last century."
Abstract This paper explains that the goal of its thesis is to conceive a model to manage the global interestrate risk of the commercial portfolio in order to determine the optimal structure of the new production and to test the tool on the Credit Foncier de Monaco, private banking and subsidiary of Calyon, which is obviously the investment banking of Credit Agricole. The paper's thesis is divided into two main sections: the theoretical modeling and the empirical application.
Table of Contents:
Abstract
Abbreviations
Introduction
Theoretical Modeling
Identification
InterestRate Nominal vs. Real Rate Fixed vs. Variable InterestRate Short-Term vs Long-Term Rates Spot vs. Forward Rates Term Structure of Interests Theories
Methods
Deterministic and Stochastic Models
Sources of InterestRate Risk
Repricing or Maturity Mismatch Risk
Basis or Bid-Ask Spread Risk
Yield Curve Risk
Options Risk
InterestRate Exposure
Net and Gross Positions
Balance-Sheet & Gap
Profit and Loss Statement and Spread
Factors
Measurement
Volume
Instantaneous Gaps
Generalized Gaps
Indexed Gaps
Simulated Gaps
Value
Duration
Convexity
Market Margin
Sensitivity
Modified Duration and Relative Convexity
Money MarketsRates Management
Hedging And Speculation
Micro or Macro Hedging
Systematic or Selective Hedging
Partial and Total Speculation
Hedging Risk and Opportunity Cost
Passive and Active Hedging
Passive Hedging or Beta Management
Active Hedging or Alpha Management
Instruments
Spot
Forward And Future
Fra And Swaps
Options
Modeling
Utility
Structure
Utility Function
Constraints
Regulation
Commercial
Model
Objective Function
Efficient Portfolio
Optimal Portfolio
Empirical Application
Presentation
Cfm
Treasury
Asset-Liability Management (Alm) Committee
Adaptation
Structure
Constraints
Rates Simulation
Leverage
Regulatory Constraints
Variance-Covariance Matrix
Utility
Variances
Conclusion
Glossary
Appendix: Balance-Sheet + Profit & Loss Statement
Appendix: Balance-Sheets by Currency, Maturity and InterestRate Appendix: Gaps
Appendix: Correlation and Variance-Covariance Matrix
Appendix: Weightings and Balance-Sheets in March 2008
Appendix: Coefficients of Variation
Appendix: Objective Function for Different Aversions to Risk
From the Paper "Taking into account the stock and constraints, the model determines the optimal allocation of the production for different scenarios of rates level, rates volatility and risk aversion degrees. The bank hedges against the interest rate risk by optimally adjusting its production.
"The optimal portfolio is the tangent point between the efficient frontier and the indifferent curve. It is obtained by equalizing the marginal rate of transformation (MRT) to the risk to return, which is the slope of the efficient frontier, and the marginal rate of substitution (MRS) to the risk to return, which is the slope of the objective function."
Tags: tool transformation, tangent point, risk premium, asset management
Abstract A large increase in rates could deter new investment and signal a slowdown for the booming economy; nevertheless, the government may persist in raising the rates. This paper looks closely at the various effects this rise will have on the market, employment, and investment.
From the Paper "To combat inflation, the Fed adjusts the Federal Funds rate and the discount rates to tighten the money supply. This is the rate of interest the Fed charges major financial institutions. When the Fed increases the prime rate, this signals a rise in other interest rates. Long-term interest rates are affected more by the expectations of investors; if they believe inflation will rise in the future, they will demand a higher return on their fixed income investments, causing long-term interest rates to rise. Inflation triggers further rises in interest rates because lenders want to be compensated for inflation when they lend money. The greater the rate of inflation, the faster real purchasing power decreases."
Abstract This paper explains that, even though transformation of deposits into loans generates a return but engenders financial risks and particularly an interestrate risk, the Basel II Committee does not provide any standardized method to manage this crucial risk. The author adapts the Markowitz portfolio selection theory on the banking, particularly on the commercial balance-sheet. This model is tested on Credit Foncier de Monaco and finds that this tool maximizes under constraints the risk-adjusted performance and determines the optimal allocation of the assets. In conclusion, the theoretical objectives are compared with the actual results. Numerous formulas are used throughout the paper and seven appendices are included.
Table of Contents:
Abbreviations
Introduction
Theoretical Modelling
Identification
InterestRate Nominal Vs. Real Rate Short-Term Vs Long-Term Rates Spot Vs. Forward Rates Term Structure Of Interests Theories
Methods
Deterministic And Stochastic Models
Sources Of InterestRate Risk
Repricing Or Maturity Mismatch Risk
Basis Or Bid-Ask Spread Risk
Yield Curve Risk
Options Risk
InterestRate Exposure
Net And Gross Positions
Balance-Sheet & Gap
Profit & Loss Statement & Spread
Factors
Measurement
Volume
Instantaneous Gaps
Generalized Gaps
Indexed Gaps
Simulated Gaps
Value
Duration
Convexity
Market Margin
Sensitivity
Modified Duration And Relative Convexity
Money MarketsRates Management
Hedging And Speculation
Micro Or Macro Hedging
Systematic Or Selective Hedging
Partial And Total Speculation
Hedging Risk And Opportunity Cost
Passive And Active Hedging
Passive Hedging Or Beta Management
Active Hedging Or Alpha Management
Instruments
Spot
Forward And Future
Fra And Swaps
Options
Modelling
Utility
Structure
Utility Function
Constraints
Regulation 40
Commercial
Model
Objective Function
Efficient Portfolio
Optimal Portfolio
Empirical Application
Presentation
Cfm
Treasury
Asset-Liability Management (Alm) Committee
Adaptation
Structure
Constraints
Rates Simulation
Leverage
Regulatory Constraints
Variance-Covariance Matrix
Utility
Variances
Conclusion
Glossary
Appendices
Balance-sheet + Profit & Loss Statement
Balance-Sheets by Currency, Maturity and InterestRate Gaps
Correlation and Variance-Covariance Matrix
Weightings and Balance-Sheets in March 2008
Coefficient of Variations for Different Scenarios
Objective Function for Different Aversions to Risk
From the Paper "The bank uses options to hedge against the exercise of inserted options. The interest rate option is the right for the holder to borrow from (put) or lend to (call) the writer an underlying at the strike rate against a premium at each date (American option), at predetermined dates (Bermuda option) or at maturity (European option). The basis strategy of the bank is long call or short put in case of decrease of interest rates and short call and long put in case of increase of interest rates."
