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6 Cards in this Set
- Front
- Back
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Relationship between market price and yield |
Negative relationship/inverse - when yield goes up, prices goes down Investors want more competitive yield to protect interest rate risk in the time of inflation |
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Why would interest decrease and is it likely to happen |
When demand trading and demand has dropped, interest will be decreased by central bank to pique interest and encourage borrowing. If inflation is hitting the target or too much Brexit makes it unpredictable, we dont know At the moment, its dropping because of monetary policy in central bank - some at its lowest e.g. Australia 1% |
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Relationship between time and price |
Long term bonds are more volatile Long term have higher interest which means a lower price than short term Short term is demanded more by investors to avoid risk and have a guarantee |
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What can cause the yield to change |
Inflation, government, demand and supply, market ratings |
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Advantages and disadvantages of Eurodollar |
Short term international money market Done offshore so no regulation or restrictions by government. Higher lending rate and lower borrowing rates - competitive No deposit insurance is required and a flexible capital market Transaction costs, default risks and systematic risks are low Majority of lending in dollars - high demand and usd shortage. Can lead to over leverage during to lack of liquidity Any negative activity can have a knockoff effect on other markets Risk of bank runs from sudden withdrawals |
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Features of CD |
Deposits for fixed periods and repaid with interest Issued by banks as security or collateral Active on secondary market which means its flexible. This means that the rate of return is low. Maturity is typically 3 months to 5 years Quoted on a yield basis - according to inflation |
