Fixed Interest Rate Research Articles

Unveiling the adverse selection problem in China's digital lending market: Evidence from CHFS

Using data from the China Household Finance Survey (CHFS) 2019, we reveals a substantial adverse selection issue within China's Internet Credit Loan (ICL) market. Empirical evidence indicates that households with higher Debt-to-Income Ratios (DIR) are more inclined to apply for Internet Credit Loans (ICLs), with an average DIR of 76.9 %, constituting 20 % of ICL applications. While Internet Credit Loans (ICLs) provide alternative financing options, their high fixed interest rates undermine the potential cost advantages associated with digital technology. Adverse selection is especially pronounced in the case of operational loans. Our findings underscore the urgency for regulatory intervention to address these issues effectively.

How does a small firm end up with a more expensive loan guarantee when a cheaper and safer one was on offer? The intriguing case of two UK Covid-19 guarantee schemes

Most countries introduced loan guarantee schemes in the Covid-19 pandemic, and the UK offered two schemes. The BBL scheme had a cap of £50,000, a 100 % guarantee, and a fixed interest rate of 2.5 %. The CBILS scheme had a cap of £5 m, an 80 % guarantee and lenders set interest rates. We exploit a behavioural anomaly that led to 9,989 firms taking a CBILS loan for a cash amount below the BBL loan cap. Larger and older firms were more likely to be in this loan class and this is caused by lender sorting of firms by risk.

Assessing the environmental performance of green mortgage‐backed securities

AbstractThe green bond market is growing substantially, bringing with it a focus on economic and environmental performance. Yet while extensive work exists examining the former, there is little concrete evidence regarding the efficacy of green bond use‐of‐proceeds. Concurrently, the demand for ESG‐compliant investments provides an opportunity to direct capital toward the rehabilitation of one of the most energy‐intensive asset classes: real estate. One program in this space, the Fannie Mae Green Rewards green bond program, offers incentives to borrowers to increase multifamily building energy and water efficiency. Although all program participants must complete a set of preapproved projects targeting energy and water efficiency within 12 months of loan origination, there exists substantial variation in the realization of postorigination efficiency outcomes, and in the variation between projected and actual efficiency improvements. We find that fixed interest rates and supplemental financing loan structures are associated with postorigination energy efficiency improvements, as are newer, larger, and high‐quality assets. However, the ex ante estimates of efficiency savings provided to prospective investors prove unrelated to the efficiency outcomes. These findings highlight opportunities to improve program transparency and calibration across the green bond universe.

Fear of COVID-19 and Financial Sector of Tadawul Stock Exchange

The objective of this study is to analyse the effect of the COVID-19 outbreak on the financial sector's equity returns, specifically focusing on Sukuk & Bonds (TSBI), Diversified Financials (TDFI), Banks (TBNI), Insurance (TISII), and the Tadawul All Share (TASI) Index. This will be done through the utilisation of t-test and event study technique. The event will take place from December 2018 to March 2020. The estimation period covers the time frame from December 2018 to December 2019. The pre-announcement phase of the WHO notice spans the month of January 2020, while the post-announcement phase encompasses February 2020 to March 2020. The study suggests that, prior to the alarm given by the WHO, the majority of the financial sector exhibits positive returns, with the exception of Banks. The results validate the substantial and adverse influence of the COVID-19 epidemic on Diversified Financials (TDFI), Banks (TBNI), and Insurance (TISII) following the global alert notice by the World Health Organisation (WHO). The study indicates that the Sukuk & Bonds (TSBI) sector has remained unaffected by the epidemic and has shown a favourable influence on returns. This industry provides a fixed interest rate and does not influence the expectations of investors. Saudi Arabia's government announced a stimulus package of $18.7 billion on March 20, 2020. The adverse consequences suggest that the policymakers failed to foresee this issue and did not take timely action. This study recommends that effective policies must be designed by the policymakers in anticipation of such pandemic outbreak that may help the investors to devise diversification strategies.

ANALISIS PREMI TAHUNAN INDIVIDU DENGAN MANFAAT YANG DIBAYARKAN PADA AKHIR TAHUN KEMATIAN

Life insurance is an insurance product that provides guarantees in the form of benefits to the insured's family if the insured dies in the future. The amount of this benefit is influenced by the amount of the annual premium paid by the insurer to the insured. The researcher will calculate the amount of the individual's annual premium on endowment insurance. The researcher will use a fixed interest rate to calculate the discount factor and the Gompertz distribution approach to calculate the insurer's chance of survival. Previously, the researcher will estimate the Gompertz distribution parameters using the Maximum Likelihood Method (MLE) based on the 2011 Indonesian Mortality Table (female). Furthermore, the researcher will calculate the insurer's chance of survival using the Gompertz distribution to obtain the actuarial present value of the initial term annuity and the actuarial present value of the endowment life insurance. In addition, the researcher will calculate the comparison of the present value of the endowment life insurance to the present value of the life annuity. The last step is that the researcher will multiply the comparison of this present value by the benefits received to calculate the amount of the individual's annual premium. The calculation results show that the comparison of the present value of dual-purpose life insurance to the present value of a living annuity is getting smaller as the policy coverage period increases. As a result, the amount of the individual's annual premium will also be smaller. This shows that the amount of the annual premium is influenced by interest rate factors, the insurer's life chances, and the length of the coverage period.

Linkages Between Property Prices and Macroeconomic Determinants: Evidence from Germany

The global financial and economic crisis has led to significant efforts to better integrate property price channels into macroeconomic models and to improve models. This paper deals with property prices in Germany and their determinants in the period Q1 2000‒Q4 2022. Since then, property prices in Germany have risen considerably. The models regularly use indicators that are aligned with the specificities of property, but less macroeconomic determinants. From economic models, theoretical modes of action between macroeconomic determinants and property prices are generally known. Regarding Germany, there are only limited studies on the direct influences of economic determinants. In the context of a regression analysis, this paper examines the relationship between the selected variables that directly drive house prices. On the one hand the results confirm a positive relationship between property prices and real GDP. On the other hand, a negative correlation was found for real short-term interest rates and inflation. In this study, no significant relationships were found between house prices and unemployment rate and long-term interest rates, despite a culture of long-term fixed interest rates in Germany.

Funding of geological exploration during transformation of the Russian economic system

Background. The mineral resource base is a strategic component of Russia’s economic security, being a critically important tool for strengthening the country’s position in the international arena. At the same time, economic shocks and geopolitical tensions negatively affect the investment attractiveness of geological exploration projects, which are highly important for the continuous reproduction of the country’s mineral resource base.Aim. Consideration of funding possibilities for geological exploration activities in Russia.Objectives. 1) To analyze the structure and state of geological exploration funding in Russia over the past five years; 2) to study the prospects and possibilities of attracting investments for different geological exploration stages in Russia; 3) to offer new methods and tools for optimizing the funding of geological exploration activities under the conditions of transformation of the Russian economic system.Materials and methods. The research materials included domestic and foreign scientific publications; reports and publications of the Federation Council Committee on Agriculture and Food Policy and Environmental Management of the Russian Federation, the Ministry of Natural Resources and Environment of the Russian Federation, the Federal Subsoil Resources Management Agency; the results of the “Geology, Revival of a Legend” initiative; McKinsey and OECD Global Forum on International Investment analytical materials. The materials were analyzed using a set of general and specialized scientific methods. Among them are statistical modeling and forecasting to assess the state and prospects of geological exploration funding in Russia; comparative analysis and synthesis, induction and deduction to study international experience in attracting alternative investments for geological research.Results. Proposals concerning the possibility of attracting additional funding at various stages of geological exploration through the creation of direct investment trust funds are formulated. Attention is also paid to such methods as streaming and acquisition of a fixed interest rate from production in exchange for an advance payment, which can be applied at later stages of exploration.Conclusion. New approaches and best international practices should be used to attract funding for various stages of geological exploration activities in Russia. This will make it possible to attract non-governmental resources, diversify methods of financial support, as well as to increase the investment attractiveness of geological exploration projects.

Debt limit on ruble-denominated loans to Russian non-financial organizations

Subject. The article considers debt on loans issued to Russian non-financial organizations in rubles. Objectives. The purpose is to determine debt limit on the said loans. Methods. The study rests on systems approach, using the method of statistical analysis. Results. The study revealed a significant increase in debt on ruble-denominated loans and acquired rights of claim on loans with floating or variable interest rate; loss of debt priority on ruble-denominated loans and acquired rights of claim on loans with fixed interest rate. The paper highlights peak values of difference in weighted average interest rates on ruble-denominated loans granted by credit institutions to non-financial organizations, for terms “up to 1 year”, including “demand loans”, and “over 1 year”. It also shows a significant decrease in the difference in turnovers. Conclusions. The revealed debt limit on ruble-denominated loans to Russian non-financial organizations, which, to a greater extent, is determined by the growth dynamics of debt on loans with a floating (variable interest rate) and the ability of monetary authorities to compensate for the increase in the debt of non-financial organizations by the growth of cash in circulation within the boundaries of a value benchmark, directs the government members to certain actions. The provisions of the study expand the competence of government members to form a set of measures to improve the efficiency of the Russian economy.

Analyzing the Debts Effects on Netflixs Liquidity and Costs

Netflix has issued substantial sums of debt in 2018 and 2019 in order to expand its content library and deal with the intense rivalry that exists in the streaming media sector. The objective of this paper was to investigate the ways in which Netflix's liquidity and costs of financing are impacted by the use of long-term debt financing. The annual reports that Netflix produced from 2017 through 2022 were scrutinized in great detail. According to the findings of this research, Netflix did not experience any liquidity issues in 2018 and 2019 as a result of its long-term debt financing. Therefore, organizations that provide streaming media may utilize long-term debt financing in order to make short-term investments if they managed the due dates of their loan in an appropriate manner. Meanwhile, based on the findings of this study, Netflix was able to reduce the costs associated with debt by issuing debt mostly in euros and using fixed interest rates. When interest rates are forecasted to rise, it may be beneficial for businesses to cut their debt costs by taking on debt denominated primarily in euros and offering fixed interest rates.

Assessing the Effect of International Lending Interest Rate Volatility on Government Infrastructural Expenditure

Spending on government infrastructure in Nigeria is faced with several economic challenges among which international lending rate volatility is significant. This study focuses on determining the effect of interest rate fluctuation on government infrastructural expenditure between 1993 and 2022. Its theoretical footing is the loanable fund theory, as it employs the Vector Error Correction framework to analyse the various data sourced from the World Development Indicators. The stationarity test confirmed that all the data were stationary at levels. Empirical results confirmed that international lending rate fluctuation has insignificant positive impact on public infrastructural spending (government infrastructural expenditure) in Nigeria. It was also observed that a long run relationship exists between international lending interest rate fluctuation and infrastructural development in Nigeria. It was therefore recommended that the regulatory authorities should strive to maximize this opportunity to design appropriate long term policies that can enhance infrastructural expansion through the appropriate modelling of international interest rate regime rather than putting in place short term measures that are not sustainable to infrastructural development. This paper proposes an innovative bond, the floating-interest infrastructure bond, which could attract private finance in infrastructure projects. This paper explains how private finance can be channelized into infrastructure investment by the sharing of spillover tax revenues between the government and the investors using a floating-interest-rate infrastructure bond. The private sector, such as banks and postal banks, will develop long-term deposits to provide loans for infrastructure development. Unlike the usual government bond, which provides a fixed interest rate, the proposed floating-interest-rate infrastructure bond pays a floating interest. Spillover effect depends on a number of factors, suc

WIBOR, WIRON, WIBID, POLONIA as reference rates for bank loans

Abstract The paper discusses issues connected with the use of selected indices (WIBOR, WIBID, WIRON, POLONIA) as benchmarks for bank loans. In the introduction, the author addresses the problem of manipulation of rates, which are characterized by the forecasting of interest rate values. The following part of the paper analyses the differences in benchmarks’ construction, describes their operation, methods of setting and use. It also outlines their behavior over time. Subsequently, issues relating to the application of WIBOR, WIBID, POLONIA, WIRON as benchmarks for consumer loans are presented. They have been compared to a sample bank offer based on a fixed interest rate. The final conclusions outline the possible effects of various benchmarks on borrowers, and compare the situation of the Polish banking offer for fixed-rate loans with other countries. The possible effects of new regulations in the context of the share of fixed-rate loans in the credit market are also described.

Pengembalian saham sektor perbankan dalam isu inflasi dan suku bunga

Information on changes in inflation and interest rates is one of the issues that tend to influence investment decisions in the Indonesian capital market. This study observes from 1 February 2023 to 30 April 2023 at 47 firms in the banking sector. This study finds that the performance of stock returns on risk from the banking sector as a whole has not reached an optimal level. Specifically, the evidence also shows that there is a tendency for returns to decline from February to April 2023 as the inflation rate declines. The findings of this study also imply that a decrease in returns also occurs at a fixed interest rate. In addition, this study also finds that even though there is a decrease in returns but the difference of the value between periods are insignificant.

Decreasing Impatience

We characterize decreasing impatience, a common behavioral phenomenon in intertemporal choice. Discount factors that display decreasing impatience are characterized through a convexity axiom for investments at fixed interest rates. Then we show that they are equivalent to a geometric average of generalized quasi-hyperbolic discount rates. Finally, they emerge through parimutuel preference aggregation of exponential discount factors. (JEL D15, D61, D91)

정책모기지 이용자 만족도 영향 요인 연구

Policy mortgage is a policy financial product that enables long-term fixed interest rate, low interest rate, long-term loan period, and installment repayment for the residential stability of the common people and improvement of housing welfare. This study conducted an empirical analysis through a proportional odds logit model for households using Bogeumjari Loan, a policy mortgage for the housing vulnerable class, based on the Korea Housing Finance Corporation's '2021 Housing Finance and Demand Survey'. As a result of the analysis, the factors that affect Bogeumjari Loan user satisfaction are loan income requirements, loan maturity, increase in existing loan limit, educational level, type of product used, number of children, comparison with other products before joining, and finally single householder in order. In order to vitalize policy mortgage, it is considered that flexible operation considering the factors that most affect the satisfaction of policy mortgage users, such as housing price loan limit, income requirement, maturity, and repayment capacity, is necessary. As interest rates have risen sharply recently, the burden of repayment of interest on home mortgage loan users has been increasing, so the role of policy mortgage for the housing vulnerable class is expected to become more important. In addition, the results of this study can be used as policy data to improve housing welfare for homeless people or low-income consumers who want to buy their own home.

Pricing of European call option under fuzzy interest rate

<p style='text-indent:20px;'>Option pricing under fuzzy environment is a hot research topic nowadays. Traditionally, option pricing were made in the case of fixed interest rate, while the fluctuate of interest rate may result in profit loss or bring unexpected risk. Thus, based on credibility theory, a new option pricing model under fuzzy interest rate are constructed in this paper. In fact, almost all fuzzy option pricing uses expected value method. In this paper, a new pricing method, fuzzy term structure and fuzzy affine term structure method, is adopted, and two European call option pricing formulas are obtained, one is that the fuzzy interest rate coefficients are constants, the other is that the fuzzy interest rate drift coefficient is a fuzzy process.</p>

Inflation expectations and consumer spending: the role of household balance sheets

Research interest in the reaction of consumption to expected inflation has increased in recent years due to efforts by central banks to kick-start demand by steering inflation expectations. We contribute to this literature by analysing whether various components of households’ balance sheets determine how consumption reacts to expected inflation. Two channels in particular are conceivable: an increase in inflation expectations can raise consumption through direct increases in expected real wealth, e.g. for households with nominal financial liabilities. By affecting the real interest rate, expected inflation can interact with wealth if only those households can adapt their consumption to current real interest rates that are not budget-constrained or sufficiently liquid to shift funds between consumption and savings. We investigate these channels empirically using household-level information on balance sheets, durable consumption and inflation expectations from the Dutch Central Bank’s Household Survey. We find that investments in risky assets as well as net worth moderates the relation between expected inflation and durable spending decisions. The net worth effect is most pronounced for households with fixed interest rate mortgages.

Predicting future default on the Covid-19 bounce back loan scheme: The £46.5 billion question

The UK has had a commitment to loan guarantee schemes since 1981 when it introduced the Small Firms Loan Guarantee (SFLG) scheme to address access to debt finance issues for smaller firms. Over the last 40 years, its support has been unwavering, and in the Covid-19 crisis, it once again turned to loan guarantees as a means of supporting smaller firms through the crisis-induced slump in trading activities. Of its three core Covid-19 guarantee schemes, the Bounce Back Loan (BBL) scheme was the most numerous with 1,531,095 loans issued amounting to a total of £46.5bn in lending. The BBL scheme provided a 100% capital guarantee on loans between £2,000 and £50,000, and firms were allowed to borrow up to 25% of their trading income, with a fixed interest rate of 2.5% of which the first years interest was paid by the government to the lending bank. Our findings suggest that the government losses may range between £7bn and £12bn depending on the underlying assumptions; however, we estimate Covid-19 guarantee schemes may have protected 118,639 businesses and 1,117,849 jobs. Looking to the future, we suggest that a new loan guarantee is justified that more resembles the former SFLG than the restrictive Enterprise Finance Guarantee (EFG) as more than one million small businesses will be heavily indebted and unable to borrow to invest in future growth opportunities. This would support the ‘levelling-up’ agenda and help prevent a post-Covid-19 low investment–low growth scenario.

The effect of the nature of the financing activity on interest rates and Murabaha rates in the emerging economy

This study aimed to get acquainted with the impact of the nature of financing activity on the interest rates and Murabaha rates prevailing in commercial banks and microfinance institutions (MFIs) in Jordan, as the main object of microfinance activity is to reduce poverty and unemployment (Lal, 2018). The study used the descriptive and analytical approach to evaluate the extent of variation in interest rates among different financing sectors. The study used a t-test for independent samples to test the extent of statistically significant differences between the interest rates and Murabaha rates between the three types of activity; the one-way analysis of variance (ANOVA) test was also used to test the variance in interest rates between the MFIs. The study found statistically significant differences between fixed interest rates, declining interest rates imposed by MFIs, and interest rates in commercial banks, and between Murabaha rates used in MFIs and Murabaha rates in Islamic banks. Fixed interest rates, declining interest rates, and Murabaha rates were higher in MFIs than the commercial banks and Islamic banks which oppose the main object of a microfinance institution that is helping poor families and small institutions gain access to financial services, The study found statistically significant differences between the interest rates of the MFIs themselves. The study recommended tightening control over the microfinance sector or capping its interest rates (Heng, Chea, & Heng, 2021) to match the interest rates and Murabaha rates in it along with the cost of obtaining funds and operational costs in these institutions.

Fixed Rate Versus Adjustable Rate Mortgages: Evidence from Euro Area Banks

Why do some residential mortgages carry a fixed interest rate and others an adjustable rate? To answer this question we studied unique data from 103 banks belonging to 73 different banking groups across twelve countries in the euro area. To explain the large cross-country and time variations observed, we distinguished between the conditions that determine the local demand for credit and the characteristics of banks that supply credit. As bank funding mostly occurs at the group level, we disentangled these two sets of factors by comparing the outcomes observed for the same banking group across the different countries. Local demand conditions dominate. In particular we find that the share of new loans with a fixed rate is larger when: (1) the historical volatility of inflation is lower, (2) the correlation between unemployment and the short-term interest rate is higher, (3) households' financial literacy is lower, and (4) the use of local mortgages to back covered bonds and of mortgage-backed securities is more widespread.

Дослiдження динамiки iнструменту своп процентної ставки iз використанням методiв машинного навчання

For the European financial system, the interest rate swap is a well-known mechanism to reduce the potential effects of these risks, but it is new to the Ukrainian interbank market. In the second half of 2020, the National Bank of Ukraine and commercial banks held their first interest rate swap auctions. According to this provision, one party offers the other a floating interest rate while the other offers a fixed interest rate based on a conditional amount. Based on the Ukrainian overnight interbank rate index, the latter is computed (UONIA). Future cash flows are discounted at rates determined by the zero coupon yield curve created for hryvnia government bonds. The parties agree on how to calculate the difference in interest payments within the predetermined period of time. The analysis of the fair value of this financial instrument at future points in time is the main concern of mathematical modeling of interest rate swap transactions. Predicting future changes in fair value is particularly crucial when the zero coupon yield curve’s coefficients vary and when there are specific trends in the index of overnight interbank rates. The sensitivity of the specified factors to the interest rate swap’s dynamics was investigated in the study, and a forecast of the instrument’s future dynamics based on the change in important macroeconomic indicators was developed.