...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 dedication...
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...Study……………………………………… 7 7. Scope and Limitation of the Study………………………… 7 8. Research Methodology……………………………………. 7 II. Literature Review……………………………………………… 8-9 III. Discussion III.1. Interest rate versus exchange rate in Bank deposit……… 10 III.1.1 Appreciate US Dollar in Bank Deposit factor…10-11 III.1.2 Depreciate US Dollar in Bank Deposit factor….. 11 III.2. Interest rate affected in Stock market…………………... 11 III.2.1 Depreciate US Dollar in Stock Market………..11-12 III.2.2 Appreciate US Dollar in Stock Market..................12 IV. Conclusion……………………………………………………… 13 V. References…………………………………………………….14-15 Abstract In this paper, I use high frequency data to investigate the extent to which interest rate changes originated in the United States by the Reserve Federal Fund. More specifically, I am interested in understanding in effects of changes in the Federal Reserve Fund’s interest rates on differential between (short term) local currency interest rates. I also investigate how interest rate influences to the foreign exchange market when Federal set the interest rate. The result indicates that Federal Reserve’s rate can influence foreign exchange market in the bank deposit factor and in the stock market. Key words: U.S Federal Reserve, Federal Fund rate, Interest rate and foreign exchange market. ACKNOWLEDGMENTS First of all, I have been blessed with the help of some wonderful people while preparing this term paper. Thanks must first given to Dr. CHHUN Vannak...
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...qwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwer...
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...increased gradually, from one million to 18 million Jordanian Dinars. The CBJ enjoys the status of an independent and autonomous corporate body, although its capital is owned entirely by the government. Objective The law establishing the CBJ stipulates that "the objectives of the Central Bank shall be to maintain monetary stability in the Kingdom, to ensure the convertibility of the Jordanian Dinar, and to promote the sustained growth of the Kingdom's economy in accordance with the general economic policy of the government." The most important objective of the central bank is to achieve the stability of the exchange rate is crucial for continuous economic growth; also the control of the inflation rate and the interest rate. Firstly, the exchange rate is the price for which the currency of a country can be exchanged for another country's currency. The exchange rate...
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...flows regularly between financial markets as investors attempt to ensure they get the highest short-term interest rates possible. Hot money will flow from low interest rate yielding countries into higher interest rates countries by investors looking to make the highest return. These financial transfers could affect the exchange rate if the sum is high enough and can therefore impact the balance of payments. 2. Stolen money that is marked so as as to be traceable. | | Investopedia explains 'Hot Money'1. Banks usually attract "hot money" by offering relatively short-term certificates of deposit that have above-average interest rates. As soon as the institution reduces interest rates or another institution offers higher rates, investors with "hot money" withdraw their funds and move them to another institution with higher rates. 2. Hot money might have been involved in a robbery and tracked through dye marks on each bill or through recorded serial numbers. | Definition of 'Foreign Exchange Intervention'A monetary policy tool in which a central bank takes an active participatory role in influencing the monetary funds transfer rate of the national currency. Central banks, especially those in developing countries, intervene in the foreign exchange market in order to build reserves, stabilize the exchange rate and to correct misalignments. The success of foreign exchange intervention depends on how the central bank sterilizes the impact of its interventions, as well as general...
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...Tutorial Questions ------------------------------------------------- Tutorial 1 – Assumed Knowledge Revision ------------------------------------------------- Questions are to be attempted prior to attending the tutorial 1. Classify each of the following items into one of the five categories: Asset, Liability, Equity, Revenue, or Expense. Item | Category | Motor vehicle | | Interest expense | | Rent received | | Bank overdraft | | Retained profits | | Trade Payables | | Stock on Hand | | Cash | | Brand names | | Dividend paid | | 2. a) What is depreciation? b) Where does depreciation appear on the balance sheet? 3. a) Solve the equation b) Verify your answer. 4. a) What is working capital? b) What is the definition of net working capital? c) Can net working capital have a negative value? Explain. 5. a) What is 18% of 675? b) Increase 834 by 68.3%. 6. Calculate EPS given the following information: Profit before tax = $430,000 Sales = $1,120,000 Tax rate = 30% Number of shares outstanding = 530,000 7. a) Explain what is meant by a “tax deduction”? b) A tax deduction is deducted directly from your amount of tax payable. True or False? Tutorial Questions ------------------------------------------------- Tutorial 1 – Additional Revision ------------------------------------------------- Questions are to be attempted prior to attending the tutorial 1. Solve the equation ...
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...Case 19 | Morris de Minas | By Ian H. Giddy | Vijak Pongtippun Viwan Wongviriyawong Wenyu | Introduction In August 1984, Morris Mini Mainframe Computer Company in New Jersey was looking for the most desirable financing alternative for Morris de Minas Ltda, its Brazilian affiliate, in the working capital needs of 82,650 million cruzeiros or US $39,320,000; at the exchange rate of 2,102 cruzeiros per US dollar. David Albuquerque, the vice-president of finance for the Latin American Division, was in charge of exploring possible financing arrangements and preparing a financing alternative plan. Albuquerque believed that Brazilian expected inflation rate and tax legislation, and the future exchange rate would play major roles in his analysis although it was not easy to predict. However, as a company’s consultant, we would help Mr. Albuquerque make the most effective decision that associated with the least risk possible. Company Background Morris was a manufacturer of super-mini computers located in Hackettstown, New Jersey. As it had gone globally a long time ago, by 1983, the revenue the company earned mostly from outside the United States In 1971, Morris (USA) entered the Brazilian market by assembling and distributing computers in Belo Horizonte, in the state of Minas Gerais. After its products became known for the high quality in the late 1970s, Morris expanded its market to Brazil to manufacture and distribute a line of super-minis, including a full line...
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...You Decide In order to improve the overall economy and lower the unemployment rate and correct inflation the government needs to adopt the expansionary monetary policy. This policy incorporates ideas to jump start the economy again. Lowering interest rates will help improve employment. Having lower interest rate will encourage consumers to buy and spend money. For example, lower mortgage rates will make people more inclined to buy a house. Many future home owners would consider buying a home when the rates are low because it will lower their payments compared to higher rates. An increase in home purchases would help improve the economy. In addition, low interest rates for business loan will help encourage businesses to expand their company. Borrowing money at 1 percent would be a no brainer for business to grow their company. Also interest rates have a significant role when businesses use a bank line of credit. If a company can borrow money on at a lower interest it will help their overall net profit because their interest expense would be lesson. To improve unemployment rates it starts with the small businesses. Lowing interest rates can have considerable positive effect with decreasing the unemployment rate. . Also I would lower the exchange rate for foreign exchange. If we lower the exchange rate more countries would decrease the imports to the US thus leading the US to export more goods to other countries. By exporting goods it would lead to more jobs for the US. The...
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...Monetary policy ups KIBOR rates By Mohiuddin Aazim BENCHMARK KIBOR of all tenures witnessed an increase of 22 to 35 basis points during the week ending December 3 after a 50bps rise in the central bank`s policy rate. The State Bank of Pakistan raised its discount rate from 13.5 to 14 per cent from November 30 to rein in inflation. During July-October this year, the average CPI inflation was up 14.2 per cent over the same period of last year. The rate rise—the third in a row so far this fiscal year—came at a time when banks reported a pick up in demand for private sector credit and amidst signals that the government would be borrowing more from banks rather than from the SBP. “It is in this context that the pass-through of policy rate hike is immediate and strong and we hope to sustain it,” said treasurer of a large local bank. The federal government`s borrowing from the SBP between July and November 19 reached Rs282 billion which, in part, has been responsible for accelerating inflation. Its borrowing from commercial banks, during this period, totalled Rs76 billion. Bankers say, more recent data should show in coming weeks an increasing trend in government borrowing from commercial banks. They base their anticipation on huge auctioning of treasury bills in the last two weeks. Credit off-take from the private sector that remained negative in the first quarter has now picked...
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...involvement. This paper will explore the different areas, including the role of Central Bank in effecting monetary policy and intervening body in exchange rate trades, Central Bank as a Last Lender Resort (LLR), and Central Bank as a regulatory body of the financial sector. Prior to further discussion, it is important to stress that the role of Central Bank and the scope of its involvement may vary due to the effect of different legislations and the presence of various stakeholders. Thus, US Central Bank does not act as a regulatory body of the financial sector (Driffill et al., 2005), whereas the intervention activity of Japan Central Bank requires the approval of other governmental bodies (Fujiwara, 2005). This paper discusses the importance of Central Bank's publications of economic forecasts and other information related to Central Bank's views of the further state of macroeconomic trends. The discussion shows that this information is highly important for other market players and forecasting agencies as it reduces the information asymmetry. The role of Central bank in macroeconomic stabilization Chandavarkar (1996 cited in Geraats, 2002) claims that macroeconomic stabilization is the pivotal role of the Central Bank. The stabilization duties include such aspects as the stabilization of the domestic price level and exchange rate as well as domestic payment systems. The entry and operations of MNEs on the domestic market as well is the growing interdependence of the domestic...
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...Domestic Information Export Finance Reserve Bank of India Foreign Exchange Department Central Office, Mumbai RBI/2004-05/153 DBOD IECS No. 35/04.02.02/2004-05 Dated September 1, 2004 The Chairmen/Chief Executives of all Commercial Banks Dear Sir, Master Circular on EXPORT CREDIT IN FOREIGN CURRENCY As you are aware, in order to have all current instructions on a subject at one place, the Reserve Bank of India had issued a Master Circular IECD No. 7/04.02.02/2002-03 dated July 1, 2003 on the captioned subject, which is now updated as on 1st July, 2004. A copy of the revised Master Circular is enclosed. It may be noted that the Master Circular consolidates and updates all the instructions contained in the circulars listed in the Appendix, in so far they relate to providing export credit in foreign currency by banks to the borrowers. Yours faithfully, Sd/(A. SREEKUMARAN) General Manager Encls. : As above (Details of the Master Circular given below) Master Circular EXPORT CREDIT IN FOREIGN CURRENCY CONTENTS 1. Pre-Shipment Export Credit 1.1 Pre-shipment Credit in Foreign Currency (PCFC) 1.1.1 Definition 1.1.2 General 1.1.3 Scheme 1.1.4 Source of Funds for Banks 1.1.5 Spread 1.1.6 Period of Credit 1.1.7 Disbursement of PCFC 1.1.8 Liquidation of PCFC Account 1.1.9 Cancellation/Non-execution of Export Order 1.1.10 Running Account Facility for All Commodities 1.1.11 Forward Contracts 1.1.12 Sharing of EPC under PCFC 1.1.13 Supplies from One EOU/EPZ/SEZ Unit to Another EOU/EPZ/SEZ...
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...V. FINANCIAL MARKETS Monetary transmission strengthened during Q4 of 2010-11 with interest rates firming up gradually across the spectrum as liquidity remained in deficit mode. The policy transmission to deposit and lending rates is visible in the current base rate regime. Asset prices, including property prices, generally remained range bound. Equity markets experienced orderly correction in Q4 of 2010-11. The rupee exhibited two-way movements against the US dollar without any intervention or active capital account management. Going forward, the financial markets need to brace up to the geopolitical risks in MENA, default risks in the Euro zone and movements in cross-border capital flows. Global portfolio rebalancing to impact domestic financial markets V.1 The year 2010-11 was marked by periods of volatility and tranquility in the Indian financial markets. With global uncertainties rising, volatility may aggravate further, partly from building up of speculative positions in global commodity markets. Portfolio choices are also governed by the geopolitical developments in the MENA region and availability of easy liquidity in certain advanced economies. An additional source of uncertainty for the global financial markets is the sovereign and banking sector default risks in parts of Europe (Chart V.1a) There could, however, be a rebalancing of investors’ portfolio if economic recovery in major advanced economies gains traction and causes a quicker-than-anticipated withdrawal...
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...China Dear Mr. Zhou Xiaochuan (The head of China’s central bank), According to the decision of China’s central bank, your esteemed bank starts cutting the interest rates effectively on Feb 28, 2015. I fully agree with this decision. Why? First, the lower interest rate helps those financial institutions, mainly commercial banks, can absorb more deposits in the future, thus they can ensure that loans remain relatively stable or even a rapid growth. Also, this reflects that China’s central bank reduce the cost of capital in order to encourage or stimulate more business credits and ease the borrowers pressures from the repayment. Secondly, it expands the upper limit of the deposit rates on its floating range. It also helps depository financial institutions can be more flexible to secure more financial resources, according to their own deposit base and the required deposit target. Moreover, it will not occur the so-called “interest rate’s war”, which means that various financial institutions need to consider their cost-effectiveness to set their deposit interest rates, so they can ensure that profits have existed. Those can ensure that banks and the interbank market due are highly liquid, secure the economic growth would not be stalled, and also this interest rate adjustment plays a good guiding role at the benchmark rate: since it further consolidate that the social cost of financing will reduce, it helps to adjust the economic structure and the transformation and upgrading of...
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...means an unstable payout ratio B a dividend policy of stable growth in dividends means a stable payout ratio C a dividend policy of a stable payout ratio means volatile dividends per share through time D both A and C 3. You hold a Barclays 350 put option, the shares at expiry close at 358p, you paid 5p for the put. Which of the following is your profit or loss at expiry? A 5p loss B 3p loss C 3p gain D 8p gain 4. Which of the following is correct? I call option price falls with higher interest rates II futures have an asymmetric payoff III interest rate swaps involve the swapping of interest and principal payments A I only B I and II only C I and III only D None of I, II or III are correct 5. You have arranged to borrow £125,000 from the bank, which requires you to repay the loan with four payments of £39,500 starting at the end of the first year. What is the interest rate you are being charged? A 9% B 10% C 11% D 12% 6. An investment has the following possible returns; 500, 550, 600, 725 and 800. The probabilities of obtaining these returns are 0.10, 0.20, 0.40, 0.20, 0.10 respectively. Which of the following is the standard deviation of the returns from this investment (to the nearest figure below)? A 50 B 60 C 90 D 100 7. The rightist view of dividends said that companies should A use the dividend to fund good projects and pay dividend from cash that remains B pay...
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...averaged around 6 percent since 2010 or roughly half the rate of core inflation in the preceding three years. The February 2014 devaluation of the tenge reflected the central bank’s concern about loss of competitiveness, amid depreciation of the Russian ruble. Temporary inflationary pressures are likely to emerge from the devaluation, although the authorities are determined to keep inflation within the objective range of 6–8 percent. The National Bank of Kazakhstan (NBK) has taken measures to strengthen the regulation of liquidity in the banking system. The NBK has been conducting periodic auctions for the issuance of short-term notes. In parallel, the NBK in 2012 introduced important changes to its minimum reserve requirements (MRR). For example, in order to assess more accurately the size of tenge liquidity, the NBK excluded banks’ cash on hand and correspondent accounts in foreign currency from the structure of reserve assets. In addition, over the past two years, the NBK periodically provided short-term liquidity to banks through automatic repo operations to smooth seasonal fluctuations in demand for tenge liquidity. Moreover, to enhance the transmission mechanism of monetary policy, the NBK was planning to engage in more active open market operations (OMOs) for both the introduction of a new policy interest rate. However, following the recent devaluation, the NBK tightened the exchange rate band and refocused the exchange rate both...
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