Interest Rate

Only available on StudyMode
  • Download(s) : 365
  • Published : March 1, 2009
Open Document
Text Preview
TABLE OF CONTENTS

Executive summary ………………………………………………………8

1. Project Profile ………………….…………………………………………9

2. Introduction……………………………………………………………...10

3. Theoretical aspects………………………………………………………13

4. Review of the Literature ……..……………………………………..…..16

5. Determinants of yield curve…………………………………………..…19

6. Analysis………………………………………………………………….31

7. Findings………………………………………………………………….37

8. Bibliography …………………………………………………………….38

9. Appendices ……………………………………………………………...39

LIST OF FIGURES

Figure 1: Time series of the yield of the treasury bills…..………………….………...21

Figure 2: Time series of the Spread of the treasury bills………………….….…….....22

Figure 3: Time series of the yield of the treasury bills and WPI index….……………24

Figure 4: Relation between yield and GDP ………………………………….…….…25

Figure 5: Relation between yield and SENSEX ……………………………..……….27

Figure 6: Relation between yield and PLR …………………………………..……….27

Figure 7: Relation between yield and CALL RATE …………………………..……..28

Figure 8: Relation between yield and GDP ……………………………………..……29

Figure 9: Relation between yield and rupee per dollar ………………….....................29

EXECUTIVE SUMMURY

The purpose of this paper is to provide an overview of recent developments in Indian interest rate yield structure and to describe some of the major factors which have driven these developments.

Short-term interest rates have emerged as the key indicators of the monetary policy stance all over the world. It is also recognized that stability in financial markets is critical for efficient price discovery and meaningful signaling. Since the interest rate and exchange rate are key prices reflecting the cost of money, it is particularly important for efficient functioning of the economy that they be market determined and easily observed.

Central banks follow a variety of operating frameworks and procedures for signaling and implementing the monetary policy stance on a day-to-day basis, with a view to achieving the ultimate objectives – price stability and growth.

In this paper, I have correlated different economic indicators with the rate of treasury bills. I have taken the various indicators like T bill 91 days, 182 days, 384 days, real growth rate of GDP, Sensex, Net FIIs flows, call money, rate of rupee against dollar etc.

Paper correlates the various economic indicators with the short term yield of the treasury yield. It identifies the effect of spurious error while applying the correlation and regression analysis. Paper finds that there is a presence of unit root in the time series, so simple regression is not a proper indicator for forecasting the interest rate. It also proves that time series of Treasury bill is non stationary and finds the order of time series to make it stationary using Augmented Dicky Fuller test.

1. PROJECT PROFILE

Project Name: Term Structure Of Interest Rate.

Developed For:Asia Pacific Institute Of Management, New Delhi.

Objective : To examine the usefulness of the slope of the yield curve as a predictor of domestic growth using a sample of the T bill of Indian economy.

Prepared By:Manohar Jobanputra
2k72a21, PGDM (2007 - 09)

Project Guide:Dr. Shrnivasan Shirur

2. Introduction

In the last two decades, international financial markets have integrated to an extent unprecedented in history. This process has profound implications for the transmission of shocks, both across financial asset prices and to the real economy. This year since January, US crisis have made a decreases a growth of both developed and developing countries.

This paper investigates the extent to which the slope of the yield curve in Indian economy is related to the domestic factors and growth.

Indian wholesale debt market plays a major role while deciding an interest rate. The Indian bond market is a third largest in Asia. Some of the key reforms since 1992 include: • The auction...
tracking img