Variance Of Interest Rates Research Articles

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.

Different investors–different decisions: On individual use of gain, loss and interest rate information

This study investigated how accumulating gains and losses, described as annual interest rates, influenced investment behavior. Investments after gains were on average greater than after losses regardless of the gain and loss interest rates. However, greater variance of interest rates gave some weight to that variable for gains but not for losses. We also analyzed the influence from different information cues on each participant’s investments. This revealed that interest rates influenced participants very differently, some invested more with increasing gains, or with increasing losses, while others invested less. This finding explained why interest rate was a weak predictor on the group level. Furthermore, our individual analyses showed an increased sensitivity to interest rates and judged future asset accumulations when the interest rate variance was greater. Finally, subjective reports of the importance of different cues for the participants’ own investments showed only some understanding of the cues influence on the investments.

Explaining changes in the US credit card market: Lenders are using more information

We examine two changes in the cross-sectional distribution of credit card contracts over time: the increasing variance in interest rates and the increasing variance in credit limits, using data from the 1989–2013 Survey of Consumer Finances. Within this dataset, we show that financial institutions seem to be collecting and using more consumer information when extending credit. We then develop a life-cycle model of lending using a novel contract structure reflecting modern credit cards, where interest rates and credit limits are jointly determined before actual borrowing takes place. Within the model, giving lenders more information on consumers generates realistic results along several dimensions. More information leads to better pricing, moving the market from a ‘pooling’ to a ‘separating’ equilibrium, generating the observed increase in variances, with the gains primarily going to young agents.

The Currency Carry Trade: Selection Skill or Behavioral Bias

<p>Many attempts have been undertaken to solve the forward premium puzzle with little to no success. The global currency market is considered the most information efficient and transparent of all financial markets since it demonstrates a balance between over and under-reaction to information with remarkable consistency. The Efficient Market Hypothesis espouses investors cannot systematically outperform a benchmark since all investors have access to the same information. Therefore, the expected long-term rate of return for currencies is essentially zero. The Arbitrage Pricing Theory asserts investment returns are random. As such, traders cannot avail themselves of mispriced currencies. The assertion of Uncovered Interest Rate Parity is that bi-national interest rate variance is equal to the expected differential in exchange rates. This paper asks the following questions: does alpha persistence exist in currency carry trade funds or are its excess returns merely a collection of behavioral biases?</p>

THE VARIANCE AND TREND OF INTEREST RATE – CASE OF COMMERCIAL BANKS IN KOSOVO

Today’s debate on the interest rate is characterized by three key issues: the interest rate as a phenomenon, the interest rate as a product of factors (dependent variable), and the interest rate as a policy instrument (independent variable). In this article, the variance in interest rates, as the dependent variable, comes in two statistical sizes: the variance and trend. The interest rates include the price of loans and deposits. The analysis of interest rates on deposits and loan is conducted for non-financial corporation and family economy. This study looks into a statistical analysis, to highlight the variance and trends of interest rates for the period 2004-2013, for deposits and loans in commercial banks in Kosovo. The interest rate is observed at various levels. Is it high, medium or low? Does it explain growth trends, keep constant, or reduce? The trend is observed whether commercial banks maintain, reduce, or increase the interest rate in response to the policy that follows the Central Bank of Kosovo. The data obtained will help to determine the impact of interest rate in the service sector, investment, consumption, and unemployment.

The Fed and the ECB: why such an apparent difference in reactivity?

PurposeThe purpose of this paper is to try to understand the reasons for the differences in amplitude of monetary policy (MP) rate cycles in the USA and the euro area. Among the different candidates, the paper aims to test the role of economic structures, macroeconomic shocks, and MP behaviour.Design/methodology/approachThe paper starts by estimating vector autoregressive models both for the USA and the euro area to identify the economic structures, the MP rules, and the macroeconomics shocks of both areas. Then, it runs counterfactual simulations (by injecting European Central Bank's (ECB) monetary rule in the US model for example) to examine which factors had the most significant impact on differences in MP activism (measured by the variance of interest rates).FindingsThe paper finds that differences implied by MP rules alone cannot explain the dissimilarity of interest rates paths. In the same way, while cyclical shocks are different in each area, they do not suffice to explain the factual divergences. Finally, it is the structural dissimilarities which essentially explain the difference in interest rate variances.Originality/valueThe paper brings new informations on a controversial issue and it tends to reject the official explanations given by ECB's governor who points out differences in shocks.

Volatility transmission across the term structure of swap markets: international evidence

The behaviour of volatility across the term structure of interest rate swaps is characterized in three currencies (Deutsche mark, Japanese yen and US dollar). For that purpose, a modified GARCH-in mean model is used allowing for seasonal patterns in the mean and variance of interest rates and asymmetric responses to interest rate surprises. Daily interest rate changes are found (a) to be predictable, following autoregressive structures, and (b) to display weekly seasonality. Additionally, interest rate volatility is shown to (a) decrease with maturity, (b) be very persistent and hence, somewhat predictable, which is important when pricing derivatives on swap products, (c) show a tendency to be lower at the beginning of the week, increasing later on, and (d) to respond asymmetrically to interest rate innovations. These properties could clearly be used in risk management with interest rate swaps. Finally, significant transmission of volatility is found from the very short-term to longer-term interest rates. This evidence supports the importance attributed by most central banks to achieving stability in short-term interest rates.

The Determinants of Bank Interest Margins: Theory and Empirical Evidence

This paper has developed a model of bank margins or spreads in which the bank is viewed as a risk-averse dealer. It was demonstrated that an interest spread or margin would always exist, and that this was the result of transactions uncertainty faced by the bank. Moreover, it was shown that this pure spread depended on four factors: the degree of managerial risk aversion; the size of transactions undertaken by the bank; bank market structure; and the variance of interest rates. The model implied that liability and asset structures had to be analyzed together since they were directly interrelated through transactions uncertainty. It was shown that because of this transactions uncertainty, hedging behavior was perfectly rational within an expected utility maximizing framework. Extending the model from a structure with one kind of loan and deposit to loans and deposits with many maturities should lead to further interesting insights into margin determination especially as “portfolio” effects may become apparent.