Futures Club, National Taiwan University Lin Chih-chuan Internal Affairs, Vice President of Futures Club, National Taiwan University Department of International.

Slides:

Advertisements

Similar presentations

Chapter 19 Securities Markets Business Today. 2Prentice Hall Investment Choices Stocks – Preferred Stock – Common Stock Common-Stock Dividends Stock Splits.

Advertisements

Market Segmentation Theory FNCE 4070 Financial Markets and Institutions.

Lesson 10-2 Demand, Supply, and Equilibrium in the Money Market.

Money, Interest Rate and Inflation

Chapter 36 - Lipsey. FINANCIAL ASSETS WealthBonds Interest earning assets Claims on real capital Money Medium of exchange.

Ch. 8: Money and inflation Money – Definition – Types – Functions Greshams law & bimetallic standard History of banking Fractional reserve banking and.

AP Macro Review Unit 4 Financial Sector.

Interest Rates on Debt Securities n Rates in general are influenced by n 1) Actions of the Federal Reserve Board n 2) Federal fiscal policy.

©2009, The McGraw-Hill Companies, All Rights Reserved 2-1 McGraw-Hill/Irwin Chapter Two Determination of Interest Rates.

Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. financial asset; 2. New Keynesian Economics; 3. transaction costs; 4. velocity of money; _____the.

Bond Prices Zero-coupon bonds: promise a single future payment, e.g., a U.S. Treasury Bill. Fixed payment loans, e.g., conventional mortgages. Coupon Bonds:

Chap. 1 The Study of Financial Markets Financial Markets – A Definition: –Markets in which funds are transferred between savers (investors) and borrowers.

The Cost of Money (Interest Rates)

INVESTMENTS | BODIE, KANE, MARCUS Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 15 The Term Structure.

Foreign Exchange Market Exchange Rate Appreciation/Depreciation Effective Exchange Rate Trade Weighted Dollar Real Exchange Rate Interbank Market: Dealers.

Lecture 4: Financial Markets Goal: Determine equilibrium interest rate Short run Main cyclical instrument (Central Bank) Monetary policy (as opposed to.

Copyright (C) 2000 by Harcourt, Inc. All rights reserved.

Chapter 7 Risk Structure and Term Structure of Interest Rates.

DETERMINATION OF INTEREST RATES OBJECTIVES 1. To explain the Loanable Funds Theory of interest rate determination 2. To identify the major factors affecting.

The Money Market. Money and Bonds Money, which can be used for transactions, pays no interest. currency checkable deposits.

The monetary policy uses three tactics to maintain the monetary stability. They are  Money supply  Money demand  Managing the risks within banking.

CORPORATE FINANCIAL THEORY Lecture 8. Corp Financial Theory Topics Covered: * Capital Budgeting (investing) * Financing (borrowing) Today: Revisit Financing.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Interest Rates and Bond Valuation Lecture 6.

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin Chapter Two Determinants of Interest Rates.

Valuing risky debt The story teller makes no choice, soon you will not hear his voice. His job is to shed light and not to master. – Garcia, Hunter.

4. Money market International financial services 1

Topic 8 Economic Concepts. Topic 8: Economic Concepts Learning Objectives – Apply the following economic concepts and measures in making financial planning.

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

INVESTMENTS | BODIE, KANE, MARCUS Chapter Fifteen The Term Structure of Interest Rates Copyright © 2014 McGraw-Hill Education. All rights reserved. No.

1 Money and Banking Introduction. Week 1 Learning Goals By the end of the week, you should … Be familiar with the different types of financial instruments.

Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 1 Chapter 10.

1 CHAPTER TWO: Time Value of Money and Term Structure of Interest.

MANAGING FOREIGN ECHANGE RISK. FACTORS THAT AFFECT EXCHANGE RATES Interest rate differential net of expected inflation Trading activity in other currencies.

Finance Chapter 4 The financial environment: markets, institutions, & interest rates.

Chapter 12 Supplement A: Fixed-Income Securities Chapter 12 Supplement A Fixed-Income Securities.

International Finance Dr Katarzyna Sum Chair of International Finance Warsaw School of Economics INTERNATIONAL FINANCE.

Money & Banking - ECO Dr. D. Foster Interest Rates II: How rates are determined The Term Structure.

Chapter 6: Learning Objectives Interest Rate Level Determination:

Problem Set Jan 14. Question 1  Money Definition (3 Pts ) – a current medium of exchange that is accepted for payment for a good/service  Example (2pts)

The Term Structure of Interest Rates Chapter 11. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 2 The Yield Curve Relationship between.

Money and Real Economy Money, Bonds, Monetary Policy, GDP 1.

Banks and Banking October 18, 2011 – Mr. Graboski Aim: What is the Federal Reserve System and what are its functions? Do Now: Write down one question you.

Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 2-1 Chapter Two Determinants of Interest Rates.

Unit 4 Problem Set Rubric

1 Chapter 06 Understanding Financial Markets and Institutions McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Investments, 8 th edition Bodie, Kane and Marcus Slides by Susan Hine McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights.

How does a change in money supply affect the economy? Relevant reading: Ch 13 Monetary policy.

Money, Banking, and Central Banking. Copyright © 2008 Pearson Addison Wesley. All rights reserved Introduction Why is the Federal Reserve System.

Chapter 15 Monetary Policy. Money Market – determines interest rate Demand for Money Transactions Speculative Precautionary Supply of money – controlled.

Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 1 Chapter 10.

Interest Rate Theory FNCE 4070 Financial Markets and Institutions.

Copyright © 2004 by Thomson Southwestern All rights reserved. 8-1 Interest Rates, Exchange Rates and Inflation Theories and Forecasting Chapter 8.

Markets & Interest Rates. Financial Markets All entities need finance to run business Financial markets - Platform that brings together entities with.

Essentials of Investments © 2001 The McGraw-Hill Companies, Inc. All rights reserved. Fourth Edition Irwin / McGraw-Hill Bodie Kane Marcus 1 Chapter 18.

14 The Federal Reserve and Monetary Policy. money market The market for money in which the amount supplied and the amount demanded meet to determine the.

GOVERNMENT POLICY: MONETARY & FISCAL POLICY 1 Adapted from James R. Russell, Ph.D., Professor of Economics & Management, Oral Roberts University ©2005.

The Structure of Interest Rates 1 CHAPTER 4 Copyright © 1999 Addison Wesley Longman.

Unit-4 Macro Review Money, Money Supply, Bank Accounting, & Fiscal and Monetary Policy 2013.

2-1 CHAPTER 2 The Financial Environment: Markets, Institutions, and interest rates Importance & Functions of Financial Markets Classification of Financial.

14 The Federal Reserve and Monetary Policy. money market The market for money in which the amount supplied and the amount demanded meet to determine the.

Module 27 & 28 & The Federal Reserve Monetary Policy

Topic 6: Interest Rates Session 6A&B Course Director:

Financial Markets & Institutions ECN 324

Chapter Seven Risk Management for Changing Interest Rates: Asset-Liability Management and Duration Techniques Copyright © 2013 The McGraw-Hill Companies,

Financial Risk Management of Insurance Enterprises

Chapter 4 Monetary Policy and Interest Rate Determination

Demand, Supply, and Equilibrium in the Money Market

Financial markets Types of financial institutions

Corporate Financial Theory

Presentation transcript:

Futures Club, National Taiwan University Lin Chih-chuan Internal Affairs, Vice President of Futures Club, National Taiwan University Department of International Business Introduction to Interest Rate Futures All Rights Reserved by the author The Information on this file may not be reproduced, republished or mirrored without permissions

Futures Club, National Taiwan University Interest Rate Definition: The cost of loan. Definition: The cost of loan. Yield to Maturity (IRR) and Current Yield Yield to Maturity (IRR) and Current Yield Rate of Return vs. Interest Rate Rate of Return vs. Interest Rate Real Interest Rate vs. Nominal Interest Rate Real Interest Rate vs. Nominal Interest Rate

Futures Club, National Taiwan University Yield to Maturity Curve--Term Structure Pure Expectations Theory Forward Interest Rate = Expected Future Spot Rate Pure Expectations Theory Forward Interest Rate = Expected Future Spot Rate Market Segmentation Theory Market Segmentation Theory Liquidity Preference Theory Liquidity Preference Theory Forward Interest Rate > Expected Future Spot Rate Forward Interest Rate > Expected Future Spot Rate

Futures Club, National Taiwan University Loanable-Funds Theory Interest rate is the price that make the supply and demand of fund be equal. Interest rate is the price that make the supply and demand of fund be equal. DepartmentDemandSupply Household Buying estate Private save EnterpriseInvestment Retained earnings GovernmentDeficit Transfer payments Monetary Institution Decrease of supply Increase of supply

Futures Club, National Taiwan University Factors that Affect Interest Rate Policy of Central Bank Fiscal Policy and Monetary Policy Policy of Central Bank Fiscal Policy and Monetary Policy Target: Internal and External Equilibrium Supply and Demand of Monetary Market Supply and Demand of Monetary Market Economic Index e.g: GNP, CPI, Rate of Unemployment… Economic Index e.g: GNP, CPI, Rate of Unemployment…

Futures Club, National Taiwan University Risk Type of Interest Rate Price Risk, for example: discount (zero-coupon) bond Price Risk, for example: discount (zero-coupon) bond Reinvestment Rate Risk, for example: coupon bond Reinvestment Rate Risk, for example: coupon bond Almost all financial instruments are affected by changing of interest rate Almost all financial instruments are affected by changing of interest rate

Futures Club, National Taiwan University What’s Interest Rate Futures Forward contracts for hedging against interest rate fluctuations. Forward contracts for hedging against interest rate fluctuations. e.g: GNMA (Government National Mortgage Association), U.S. Treasury Bill, 十年期政府公債期貨 (Taiwan) e.g: GNMA (Government National Mortgage Association), U.S. Treasury Bill, 十年期政府公債期貨 (Taiwan) Main Function: 1.Hegde 2.Hint about the future price 3.Accelerate liquidity of Real Goods 4.Absorbe fund of speculating Main Function: 1.Hegde 2.Hint about the future price 3.Accelerate liquidity of Real Goods 4.Absorbe fund of speculating

Futures Club, National Taiwan University Background of Interest Rate Futures First Contract of Interest Rate Futures: GNMA by CBOT (Chicago Board of Trade) in 1975 First Contract of Interest Rate Futures: GNMA by CBOT (Chicago Board of Trade) in 1975 Cause: 1.Policy 2.Prosperous bond market in U.S. 3.Need of hedge by bonds holders Cause: 1.Policy 2.Prosperous bond market in U.S. 3.Need of hedge by bonds holders

Futures Club, National Taiwan University Interest Rate Futures Of Taiwan (from Jan., 2004)

Futures Club, National Taiwan University Strategies of Interest Rate Futures Substitution of Bond Substitution of Bond Cross Hedge with Public Bond Cross Hedge with Public Bond Macro Hedge Macro Hedge Long Trade Long Trade Short Trade Short Trade (Yield Curve) (Yield Curve) (Spread) (Spread)

Futures Club, National Taiwan University Merit and Defect of Interest Rate Futures Risk Transferring Risk Transferring Low Transaction Cost Low Transaction Cost High Liquidity High Liquidity Low Risk of Deficit Low Risk of Deficit Standard Contract Standard Contract A Paradise of Speculators A Paradise of Speculators Diversification Is Not Enough Diversification Is Not Enough Undividable Contract Undividable Contract Imperfect Function of Hedge Imperfect Function of Hedge Merit Defect

Futures Club, National Taiwan University Reference TAIEX, TAIEX,  CBOT, Frederic S. Mishkin, The Economics of Money, Banking, and Financial Markets 7th edition, Addison Wesley Frederic S. Mishkin, The Economics of Money, Banking, and Financial Markets 7th edition, Addison Wesley Bodie, Kane and Marcus, Essentials of Investments, 5th edition, McGrawHill Bodie, Kane and Marcus, Essentials of Investments, 5th edition, McGrawHill