Options on Fed funds futures and interst rate volatity
... According to the CBOT, the daily volume of options on Fed Funds futures was approximately 21,908 on March 30, 2007. The
CBOT also introduced a new option contract called Fed Binary Options which pays either 0 or the intrinsic value of the option. On
February 7, 2007, open contracts in Binary options ...
Transmission of Monetary Policy Impulses on Bank
... the interest rate pass-through from central bank tools to retail interest rates. The retail
interest rates are the lending and deposit rates of commercial banks and other non-bank
deposit taking institutions. The second stage is the transmission of the changes in retail
interest rates to the aggrega ...
The Swaps Market: A Case Study Detailing Market
... euros and then making floating rate payments in euro, whereas Party A is swapping euros for
dollars and will make fixed rate payments in dollars. Currency swaps clearly can allow a great
deal of flexibility in managing foreign exchange operations – thus first gaining a basic
understanding of the str ...
... conditions in each market. As funds leave a country with low interest rates, this places upward
pressure on that country’s interest rates. The international flow of funds caused this type of reaction.
14. Impact of War. A war tends to cause significant reactions in financial markets. Why would a war ...
The Role of Interest Rate Swaps in Corporate
... views of either the Federal Reserve Bank of Richmond or the Board of Governors of the
Federal Reserve System. The motivation for this article grew out of discussions with Douglas
Diamond. Michael Dotsey, Jeff Lacker, Roy Webb, and John Weinberg provided thoughtful
criticism and helpful comments.
Swaps - dedeklegacy.cz
... termination of a swap is the cancellation of the swap contract (in which case one
counterparty compensates the other counterparty for the loss of expected profit over
the remainder of the life of the swap)
assignment of a swap is the sale of the swap by one of the counterparties to a third party
INSTITUTE OF ECONOMIC STUDIES Faculty of social sciences of
... a higher-lower quote means that the quoting dealer is willing to transact a swap in
which he receives/pays the given fixed rate
the difference between the two rates is the dealing spread the dealer earns on every
matching pair of swaps
swap rate is the average of bid and ask interest rates
swap spre ...
Decision Avoidance and Deposit Interest Rate Setting
... Secondly a large literature has emerged examining how individuals can be poor
money managers (see Benartzi and Thaler 2007). This study contributes to this field by
responding to concerns that firms change their behaviour to exploit observed behavioural
anomalies (Frey and Eichenberger 1994) and tha ...
Interest Rate Risk Management for Commercial
... In order to apply a comparable and widely accepted measure for the interest rate risk of banks, we
follow the “standardized interest rate shock” approach also proposed within the new Basel Capital Accord
(Basel II), that are published by the Basel Committee on Banking Supervision (2004). The committ ...
Interest Rate Swap
... ■ More complex contracts can be concluded in the OTC market, where e.g.
● The notional vary with time
● The contract is not spot but forward
● One or both legs are function of more than one reference rates (structured swaps)
Fund Transfer Pricing in a Commercial Bank
... currency into another, and safekeeping of coins. Money was initially kept in banks for
security, not for profit, and was not invested into loans. Certificates were issued by
banks to confirm the amount of money stored in vaults.7
Storing money allowed for facilitation of payments between bank’s cust ...
Analysis of the Discount Factors in Swap Valuation
... Currency swaps, introduced in the 1970s due to foreign exchange controls in Britain,
have been an important tool for financing.  In a currency swap contract, Party A
makes predetermined payments periodically to Party B in one currency like U.S.
dollars, meanwhile, Party B pays a certain amount i ...
Inflation targeting framework and interest Rates
... high interest rates to private investors. This questions the effectiveness of the prime rate in
influencing lending rates in the Ghanaian economy. The interest rate on deposit accounts and
interbank rate falls almost directly with the prime rate but lending rates turns to be sticky
downwards. Commer ...
Influence of Interest Rates Determinants on the Performance of
... which drive up deposit rates. A decrease in the discount rate encourages banks to borrow and in turn this
increases the amount available in form of reserves thereby enhancing or increasing the amount money
supply in the economy. Consequently this leads to a decrease in the interest rates thereby enc ...
Case Objectives - Trinity University
... creating call option gains from a rising note prices in the open market). But instead of speculating. money
lenders may hedge against falling interest rates by purchasing interest rate call options to offset possible
declines in lending rates. It is possible to set a minimum floor on net revenue suc ...
Risk-adjusted Covered Interest Parity: Theory and Evidence
... during turbulent periods such that they could significantly depart from CIP. For example, in a follow-up
study, Frenkel and Levich (1977) found that the role played by transaction costs in accounting for the
deviations in tranquil periods is not observed in the turbulent peg period of 1968-69 charac ...
Read the Economic Commentary "How far can the repo rate be cut?"
... cannot be negative. In addition, many financial contracts also express the interest
rate as an increment on some reference rate that is often close to the repo rate. One
such example is so-called floating rate notes/bonds. A note/bond usually means that
the issuer of a bond pays the purchaser a spec ...
interest rate determination in china:past,present and future
... issuance and trading of negotiable CDs, and to gradually extend the scope
of market-based pricing of liabilities of financial institutions
– Between the near and medium terms, the key is to develop a relatively
complete and efficient market interest rate system and to improve the
monetary policy fra ...
... commercial banks.
Overnight Deposit Facility (ODF) Rate - the interest rate on the overnight/term
deposit (i.e. Special Deposit Account) facilities at which the BSP takes deposits
from commercial banks.
Term Deposit Facility (TDF) Rate - the interest rate on the term deposit (i.e. 7day and 28-da ...
US Money Market Reform: The Scandi angle
... USD Libor rate of 0.79%, but still well above the 0.50% 1M USD Libor rate.
Finally, it seems that many banks have accepted a shorter maturity on their funding. But of
course such a strategy again can collide with other regulatory incentives, especially LCR
requirements. Furthermore, it is important ...
From low to negative rates
... while this ﬂoor is not passed on to the
asset side. This means that if market
rates drop the asset side potentially
follows suit and even drops into negative territory while the bank still pays
for its reﬁnancing. In other words: A
negative interest rate environment causes
the reference rate to be ...
Fed Hikes and the Impact on Spread Sectors
... rates. This outlook reflects our expectation that inflation will remain moderate (usually higher inflation is the primary reason why longer-term interest rates would rise). Subdued global growth, combined with continued slack
in certain labor markets, has reduced inflationary pressures and, in some ...
Rising Interest Rates: How Big a Threat?
... But what happens when interest rates rise suddenly? This situation last occurred in the late
1970s and early ’80s, when interest rates rose
quickly and dramatically. What occurred then
could happen again, with a similar impact on
annuity writers. At that time, the rise in rates
outpaced the ability ...
... The total notional amount of interest rate swaps is $48 trillion,
among which, $17 trillion goes to USD swaps.
At the same time, the total public debt (including Treasuries and
local government debt) outstanding in the U.S. is $5 trillion.
The total notional amount of interest rate options is ...
... process of composition or decomposition, creates one
(or more) very different financial instruments.
The Libor scandal was a series of fraudulent actions connected to the Libor (London Interbank Offered Rate) and also the resulting investigation and reaction. The Libor is an average interest rate calculated through submissions of interest rates by major banks in London. The scandal arose when it was discovered that banks were falsely inflating or deflating their rates so as to profit from trades, or to give the impression that they were more creditworthy than they were. Libor underpins approximately $350 trillion in derivatives. It is currently administered by NYSE Euronext, which took over running the Libor in January 2014.The banks are supposed to submit the actual interest rates they are paying, or would expect to pay, for borrowing from other banks. The Libor is supposed to be the total assessment of the health of the financial system because if the banks being polled feel confident about the state of things, they report a low number and if the member banks feel a low degree of confidence in the financial system, they report a higher interest rate number. In June 2012, multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by member banks connected to the rate submissions, leading to the scandal.Because Libor is used in US derivatives markets, an attempt to manipulate Libor is an attempt to manipulate US derivatives markets, and thus a violation of American law. Since mortgages, student loans, financial derivatives, and other financial products often rely on Libor as a reference rate, the manipulation of submissions used to calculate those rates can have significant negative effects on consumers and financial markets worldwide.On 27 July 2012, the Financial Times published an article by a former trader which stated that Libor manipulation had been common since at least 1991. Further reports on this have since come from the BBC and Reuters. On 28 November 2012, the Finance Committee of the Bundestag held a hearing to learn more about the issue.The British Bankers' Association said on 25 September 2012 that it would transfer oversight of Libor to UK regulators, as predicted by bank analysts, proposed by Financial Services Authority managing director Martin Wheatley's independent review recommendations. Wheatley's review recommended that banks submitting rates to Libor must base them on actual inter-bank deposit market transactions and keep records of those transactions, that individual banks' LIBOR submissions be published after three months, and recommended criminal sanctions specifically for manipulation of benchmark interest rates. Financial institution customers may experience higher and more volatile borrowing and hedging costs after implementation of the recommended reforms. The UK government agreed to accept all of the Wheatley Review's recommendations and press for legislation implementing them.Significant reforms, in line with the Wheatley Review, came into effect in 2013 and a new administrator will take over in early 2014. The UK controls Libor through laws made in the UK Parliament. In particular, the Financial Services Act 2012 brings Libor under UK regulatory oversight and creates a criminal offence for knowingly or deliberately making false or misleading statements relating to benchmark-setting.As of August 2015, UBS trader Thomas Alexander William Hayes was the only person convicted in connection with the Libor scandal.