Interest Rate

In: Business and Management

Submitted By lollies9
Words 478
Pages 2
With HACK's bank recent cut on interest rate 12 months earlier, loan base has grown, however profit has not, this is due to the fact that lowering interest rate does not necessary mean a rise in profit as consumers may refuse to hold the bank's money and present it to a rival bank, thus does not return to the Hack bank, subsequently causing a fall in security investments and deposits as well as a loss in an interest earning asset. In other words, the non banking public does not want to hold funds with HACK bank possibly due to competitive interest rates for deposits or stability.

Although it would seem logical for the bank to lower credit standards or reduce interest rate in order to advance credit and increase profit. It is not necessarily the right thing to do, as the non banking public seek to hold the bank's deposits in a hostile free bank, with minimal risk. Consequently the non banking public will turn away from institution who offer a lower credit standard or lower interest rate due the possibility of non repayment thus consequently could impact the non banking publics asset, this is one of the many reasons why the non banking public refuse to hold funds with a bank that lowers their standards. Instead of lowering rates, HACK bank should be paying competitive rates, to indicate to the market that they can keep up and is stable enough to hold funds. Although HACK bank's loan base has increased, its cut on interest rate, has not benefited in the liquidity side of things, thus cheques are also not written on them causing a loss in an asset.
With HACK's bank situation, the bank's reliance on short term borrowing has somewhat put the bank at liquidity risk, thus not improving on any profits. With the bank's 30,60,90 day Lgap and 12 month being negative, this is no doubt that Hack bank is at liquidity risk, thus the reason why profit has not increased over…...

Similar Documents

Interest Exchange Rate

...understanding on the forces driving exchange rate changes as these would affect investment and financing opportunities. This report analyzes the movements of three currencies, Australian Dollar (AUD), Icelandic Krona (ISK), and Indian Rupee (INR) against US dollar, and suggests events that may cause the violations of three chosen currencies. Analysis shows that factors including but not limited to inflation rates, interest rate differences, foreign investment as well as demand and supply of domestic currency are highly correlated with exchange rate changes in chosen currencies. Based on the analysis, Purchasing Power Parity is used to forecast spot exchange rates of those chosen currencies in one-year and three-year time. Rationales and limitations of PPP are also given to analyze the forecasts of three currencies. Table of Content 1.0 Introduction 1 2.0 Question 1 1 2.1 AUD/USD 1 3.0 Question 2 4 3.1 ISK/USD 4 3.2 INR/USD 6 3.3 Common Events that May Have Influenced the Exchange Rate Changes 8 4.0 Question 3 9 4.1 Forecast of Currencies 9 4.2 Forecast of AUD 10 4.3 Forecast of ISK 11 4.3 Forecast of INR 11 4.3 Comments on the Forecasts 12 References 13   Figures & Tables Figure 1 Exchange Rate of AUD/USD Over Five Years 1 Figure 2 Percentage Change of AUD/USD Exchange Rate 2 Figure 3 Trends of AUD/USD and Gold Price 2 Figure 4 AUD/USD Exchange Rate and Interest Rate over Five Years 3 Figure 5 Exchange Rate (ISK/USD) 4 Figure 6......

Words: 3687 - Pages: 15

Interest Rates

...INTEREST RATE RISK MANAGEMENT: DEVELOPMENTS IN INTEREST RATE TERM STRUCTURE MODELING FOR RISK MANAGEMENT AND VALUATION OF INTEREST-RATE-DEPENDENT CASH FLOWS Andrew Ang* and Michael Sherris† ABSTRACT This paper surveys the main concepts and techniques of recent developments in the modeling of the term structure of interest rates that are used in the risk management and valuation of interest-rate-dependent cash flows. These developments extend the concepts of immunization and matching to a stochastic interest rate environment. Such cash flows include the cash flows on assets such as bonds and mortgage-backed securities as well as those for annuity products, life insurance products with interest-rate-sensitive withdrawals, accrued liabilities for definedbenefit pension funds, and property and casualty liability cash flows. 1. INTRODUCTION The aim of this paper is to discuss recent developments in interest rate term structure modeling and the application of these models to the interest rate risk management and valuation of cash flows that are dependent on future interest rates. Traditional approaches to risk management and valuation are based on the concepts of immunization and matching of cash flows. These ideas were pioneered in the actuarial profession by the British actuary Frank Redington (1952). Interest rates have long been recognized as important to the risk management of insurance liabilities. Recent developments have incorporated a stochastic approach to modeling......

Words: 18994 - Pages: 76

Interest Rates

...Interest Rates, Income Distribution, and Monetary Policy Dominance: Post Keynesians and the "Fair Rate" of Interest Author(s): Louis-Philippe Rochon and Mark Setterfield Source: Journal of Post Keynesian Economics, Vol. 30, No. 1 (Fall, 2007), pp. 13-42 Published by: M.E. Sharpe, Inc. Stable URL: http://www.jstor.org/stable/27746784 . Accessed: 28/08/2013 13:51 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. . M.E. Sharpe, Inc. is collaborating with JSTOR to digitize, preserve and extend access to Journal of Post Keynesian Economics. http://www.jstor.org This content downloaded from 140.159.34.46 on Wed, 28 Aug 2013 13:51:45 PM All use subject to JSTOR Terms and Conditions LOUIS-PHILIPPE ROCHON AND MARK SETTERFIELD Interest rates, income distribution, and monetary policy dominance: Post Keynesians and the "fair rate" of interest Abstract: paper In light of the growing interest in "new consensus" models, Post Keynesian alternatives to the Taylor rule. It......

Words: 7910 - Pages: 32

An Analysis of Exchange Rate and Interest Rate

...AN ANALYSIS OF THE EFFECTS OF INTEREST RATE AND EXCHANGE RATE CHANGES ON STOCK MARKET RETURNS: EMPIRICAL EVIDENCE OF GHANA STOCK EXCHANGE A thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirement for the degree of COMMONWEALTH EXECUTIVE MASTERS OF BUSINESS ADMINISTRATION Institute of Distance Learning, KNUST JUNE, 2011 DECLARATION I hereby declare that this submission is my own work toward the Commonwealth Executive Master of Business Administration and that, to the best of my knowledge, it contains no material previously published by another person nor material which has been accepted for the award of any other degree of the University except where due acknowledgement has been made in the text. RANSFORD CHARLES ENYAAH (STUDENT ID No: 20103521) …………………… Signature …………………. Date Certified by: EDWARD ACHEAMPONG (SUPERVISOR) …………………… Signature …………………. Date Certified by: ……………………………… Head of IDL …………………… Signature …………………. Date i DEDICATION I dedicate this project work to the Lord Almighty and all my loved ones. ii ACKNOWLEDGEMENT First of all, I thank the almighty God for fulfilling his promises to my life and for granting me the strength, wisdom and knowledge to complete this work My profound gratitude goes to my Supervisor, Mr. Edward Acheampong (Lecturer, Methodist University College, Ghana) for his unflinching......

Words: 13267 - Pages: 54

Interest Rates

...industry began to fail, the US Treasury increased the interest rate on Treasury bills as a way to bring more money back to the government. As you can see from the graph, in 2009 a 1 year Treasury bill had an average interest rate of 0.55%. Throughout the short recession, the interest rate remained above 0.20% because Treasury bills were not in high demand. People had their own financial troubles, so very few could afford to send money to the government. In the first few quarters of 20122, you can see a drop in the interest rate. This was a result of the recession coming to an end. More people were able to buy Treasury bills, lowering the interest rate. In early 2012, the interest rate rose slightly, then dropped off to 0.12%, where it has remained steady since. Taking a look at the four week, three month, and six month Treasury bills, you can see the same trends. In the first quarter of 2011, the four week bill dropped substantially, from 0.10% to 0.02% and remained there until the economy began to pick back up. Notice the steady rise during 2012, and then another drop off during the second quarter of 2013. This means more people were buying Treasury bills. The three and six month Treasury bills were very similar during the recession. At the beginning of 2009, those bills were relatively high in interest rates. As there was a larger demand, the interest rates began to drop off, until 2012, when demand eased up and the interest rates began to rise again. During 2013, both......

Words: 667 - Pages: 3

Interest Rate

... | Achievements / Awards |VAT—And Reservation for Under Developed States, Published By : Academic Research Journals (ndia)  | |Frequency : Bi-Annual | |ISSN : 2319-443X  | | | Hobbies / Interests |Painting | |Designing | |Drawing | |Cinema and theater-going | Personal Details |Father’s Name: Dr. Asit Kumar Pal ...

Words: 361 - Pages: 2

Financial Markets and Interest Rates

...Markets and Interest Rates The primary market is where economic units sell new securities to raise needed funds. Could be an Initial Public Offering (IPO) or issue of new shares of an existing publicly traded company. Investment banks will set a beginning price range for a given security and then oversee its sale directly to investors. Once the initial sale is complete, further trading is conducted on the secondary market, which is where the bulk of exchange trading occurs each day. The secondary market is where investors trade previously issued securities with each other. Mediators such as mutual funds, banks and insurance companies help to simplify the flow of funds in the financial marketplace. If funds remain idle, this results in lower growth for the economy and higher unemployment and lower profits. The more efficient the market, the easier it is to transfer idle funds to those parties that need the funds. Common stockholders individually own a portion of the company and can vote on major company decisions. They receive a return on their investment in the form of dividends and/or appreciation in the value of the stock. The other kind of stockholders is preferred stockholders. Preferred stockholders do not generally have voting rights, but have priority in receiving dividends and are paid dividends at a pre-set rate. Interest rates play a large part in the financial market and come in many different forms for different situations. Nominal Interest Rates......

Words: 443 - Pages: 2

Interest Rate in Egypt

...------------------------------------------------- Interest rates are considered to be the price of holding money and the opportunity cost of any investment. After analyzing interest rates in our course do you think that interest rate in Egypt reflects the real opportunity cost of holding money? Why or why not? Please support your answer with all the references you have searched. Interest Rate is: The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest is charged by lenders as compensation for the loss of the asset's use. In the case of lending money, the lender could have invested the funds instead of lending them out. That’s why interest rate should cover the opportunity cost of lending the money to the borrower. Also, interest rate should cover the inflation rate in the economy, as by time the lender receives the principal again due to inflation, the money will be of less value than when first lent to the borrower. So, if the interest rate doesn’t cover both the opportunity cost and inflation, it’ll be irrational decision to lend the money. For example, if the lender can invest in some real estate and construction projects with an average return of 10% & if inflation is 10%, then the interest rate should be more than 20% to be rational choice for the lender to lend the money. Interest rate in Egypt: (Lending Interest Rate) So, The lending interest rate is now at 9.75% annually, so, does this rate......

Words: 765 - Pages: 4

Interest Rate

...Assignment #3 Intrest rates are considered to be the price of holding money and the opportunity cost of any investment. After analysing intrests rates in our course do you think that interest rate in Egypt reflect the real opportunity cost of holding money? why or why not? Please support your answer with all the references you have searched. The opportunity cost of holding money is the cost that could be realized if money were invested instead of held. In other words, it is the interest rate that money is earning in a chosen investment. Typically, it is the interest rate that is set on a bond, particularly a government bond. Given the other investment choices that could be made, this cost could be very different from one person or entity to another. To determine the true opportunity cost of holding money, it is necessary to first determine what the investment vehicle would have been. After that, the next step is to research what the interest rate would be on that investment strategy. If the annual percentage rate is a single percent, then one percent annually would be the opportunity cost of holding onto the money. Assigning a definite value would require first knowing how much money was being held, and how long it would be held for. In economics, investing and holding money are known as mutually exclusive choices. This means that both cannot be done at the same time with the same money. If the money is being invested, it cannot be held. It may be possible for an......

Words: 510 - Pages: 3

Finance Interest Rates

...http://testbanksfor.com (T) (F) (F) (T) (T) (T) (T) (T) (F) (T) (T) (T) (T) (T) (F) (F) (F) (T) (T) (F) (T) 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. Households are the major source of funds to the financial system. Secondary markets are important because they provide funds directly to deficit spending units (DSUs). Primary markets offer liquidity and ways for investors to alter the risk of their portfolios. The New York Stock Exchange is an example of an organized exchange. The money market provides short-term liquidity; the capital market finances long-term corporate growth. Private placements are the simplest form of direct finance. Competition among financial intermediaries tends to force interest rates downward. Money markets have a greater variety of investors than borrowers. Every asset is someone else’s liability, but not every liability is someone else’s asset. All money market instruments are short-term debt. The money market is a dealer market, not an exchange, and has no specific location. Money market borrowers are small in number compared to money market lenders. The money market is a market where liquidity is bought and sold. Commercial banks are the major issuer and investor of money market securities. Federal funds are the funds provided by the Federal Government for domestic corporations for long-term growth. Dealers bring buyer and seller together; brokers make a market. OTC markets are not very important......

Words: 4168 - Pages: 17

Interest Rates

...Exam 2 Study Guide Chapter 6: Interest Rates 1. Using the yield curve to predict interest rates (section 6-6) 2. Determinants of market interest rates (section 6-3) Be sure you know how to calculate any given components with given supporting information. 3. What determines the shape of a yield curve (section 6-5) Practice problems: 6-2, 6-3, 6-4, 6-5, 6-7, 6-9, 6-11, 6-14 Chapter 7: Bond Valuation 1. Key characteristics of bonds (7-2) 2. Bond valuation (7-3) 3. Bonds with semi-annual coupons (7-6) 4. Assessing a bond’s risk (7-7) 5. Bond yields (7-7) Practice problems: 7-1, 7-2, 7-3, 7-4, 7-5, 7-8, 7-9, 7-16 Chapter 8: Risk & rates of Return 1. Stand-Alone risk (8-2) 2. Risk in a portfolio context (8-3) 3. Relationship between risk and rate of return (8-4) 4. Implications for corporate managers & investors (8-6) Practice problems: 8-1, 8-3, 8-4, 8-6, 8-7, 8-11, 8-12, 8-14 *In addition please review the Cengage assignments & Team application activities that apply to the above chapters. Important note: Please note that this is only a study guide and should not be taken as the actual content of your second exam. In other words, reading the sections above and attempting the problems recommended should put you in a comfortable position to handle majority of questions in the exam. It is therefore prudent to expand your preparation beyond this guide....

Words: 265 - Pages: 2

Interest Rates

...Jeniffer Kim Theory of Interest Professor Chiacchiere How Interest is Effecting the U.S. Markets Today In 5000 BC, the lending of “food” money was commonplace in Middle East civilizations. Early loans and interest were based on agricultural produce. Because the acquired seeds and livestock could be replenished and reproduce themselves, the people could easily repay loans with interest using these goods. Throughout history, the practice of having interest charged on loans developed over the years. Today, people pay interest using various foreign currencies. It has been legal and regulated by different states, but it also has been restricted in different countries because of religious reasons. In the past, some cultures have regarded charging any interest for loans as sinful. Charging interest was known as ursury and Christians, Muslims and even Buddhists condemned those who practiced it. Although some disapproved of charging interest, there is no doubt that it has played a large role in moving the markets and impacting our society today. In the U.S., changes in interest rates can have both a positive and negative effect on the economy, inflation and recessions, and the stock and bond markets. Many may ask why people use interest in their everyday lives and how it makes a direct impact on the economy. When an individual takes out a loan from a bank or another party, there is a possibility that the borrower will not repay the money. The purpose of interest is to......

Words: 1382 - Pages: 6

Interest Rate

...Interest rates are considered to be the price of holding money and the opportunity cost of any investment. After analyzing interest rates in our course do you think that interest rate in Egypt reflects the real opportunity cost of holding money? Why or why not? Please support your answer with all the references you have searched. Interest Rate is: The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest is charged by lenders as compensation for the loss of the asset's use. In the case of lending money, the lender could have invested the funds instead of lending them out. That’s why interest rate should cover the opportunity cost of lending the money to the borrower. Also, interest rate should cover the inflation rate in the economy, as by time the lender receives the principal again due to inflation, the money will be of less value than when first lent to the borrower. So, if the interest rate doesn’t cover both the opportunity cost and inflation, it’ll be irrational decision to lend the money. For example, if the lender can invest in some real estate and construction projects with an average return of 10% & if inflation is 10%, then the interest rate should be more than 20% to be rational choice for the lender to lend the money. Interest rate in Egypt: (Lending Interest Rate) So, The lending interest rate is now at 9.75% annually, so, does this rate covers the inflation rate & opportunity cost of......

Words: 332 - Pages: 2

Interest Rate

...swelling or financing expenses to secure the dauntlessness of costs moreover, the normal trust in the nation's money and the cash related technique also tries to offer help with improving the fiscal advancement and steadfastness and to give more business open entryways besides, to keep up obvious exchange rates with various countries money related structures. Monetary technique can either be expansionary or contractionary . In case it is expansionary it grows the total of supply of the trade out the economy brisk however if it s contractionary it broadens the money supply continuously . In the latest year morocco lessened its credit cost from 2.5% to 2.25% and a significant extended period of time back it was 6.5% and each one of this to urge nationals to stop saving money and to start eating up also, spending logically moreover to ask outside budgetary experts to place assets into the country and even locals will start getting progressively money and eat up more which will be a gigantic favorable position for the economy in light of the fact that my reducing the advance charge we diminish the cost of securing money and each one of this will outcome of cutting down the rate of unemployment and growing optional income for customers. A part of exchange components that we can use to upgrade the economy's advancement are : * Improving HR : The sum and the way of open individuals can clearly impact the improvement of the economy since a country can't have an......

Words: 831 - Pages: 4

Interest Rates

...Interest Rates Write two paragraphs with about how interest rate affects our purchasing decisions. Paragraph One Changes in interest rates can have positive and negatives effects. According with the interest rate that we have is the amount of money that we are going to paid every month for a loan. If we have a high interest rate we have a high monthly payment, and we need to make sure that we can afford that. If we have a low interest rate our monthly payment is less. If the interest rates change the incentive for individuals to take out loans to buy goods will also change. In the interest falls for example, then the charges for a loan to buy larger items likes cars, furniture, electrical equipment, and so on, is also likely to fall. As a result more people might be willing to buy such items and the business selling these items might see and unexpected rise in demand for their products. Equally, if the interest rate rises, people might be put off buying things, since it is now more expensive to pay back the loan. Business selling the same products above, might see and unexpected fall in the demand of their products. For the individuals and for the business the changes in the interest rates can have a big impact in their financial situation. Paragraph Two Further effects of changing interest rates can affect our mortgage. For many of us, the mortgage payment is the biggest single monthly outgoing and houses are not paid off......

Words: 351 - Pages: 2