There are four theories that explain term structure of interest rates. These are1. Segmented market theory2. Expectations theory3. Liquidity premium theory4. Preferred habitat theoryWe can see the term structure by plotting a yield curve at a point in time. The general characteristics are determined as ascending, descending, or flat. (1)1. Segmented market theoryBasic notion of… Continue reading Evaluate the explanations for the term structure of interest rates
Category: CeFiMS | SOAS
Currency Hedge
Using derivatives for hedging currency volatility risk.Hedging currency risk.Hedge is the way to reduce risk or volatility. Formally, hedging can be expressed as the taking of a position, acquiring a cash flow, an asset, or a contract that will rise in value and offset a fall in the value of an existing position. (Eiteman, David… Continue reading Currency Hedge
Exchange Rate Regime and Theory
Exchange Rate RegimesExchange rate regimes are divided into 7 categories according to IMF’s classification. These are as follows.- Exchange arrangements with no separate legal tender; EU,- Currency board arrangements- Other conventional fixed peg arrangements- Pegged exchange rates within horizontal bands- Crawling pegs- Exchange rates within crawling bands- Managed floating with no predetermined path for the… Continue reading Exchange Rate Regime and Theory