International Financial Markets and Institution | Q&A

Running head: INTERNATIONAL FINANCIAL MARKETS AND INSTITUTION
INTERNATIONAL FINANCIAL MARKETS AND INSTITUTION
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INTERNATIONAL FINANCIAL MARKETS AND INSTITUTION
Table of Contents
Answer to Question 1:................................................................................................................2
Yield curve.............................................................................................................................2
Explanation of the Yield Curve..............................................................................................2
Theories of Yield Curve.........................................................................................................4
Yield Curve for the 10-Year Government Bonds..................................................................5
Answer to Question 2:................................................................................................................7
Price Earnings Ratio...............................................................................................................7
Theory of Price Earnings Ratio..............................................................................................7
Data Collection of Organizations...........................................................................................8
Industry price earnings ratio and Index price earnings ratio..................................................9
Comparison of each share for each time period...................................................................11
References................................................................................................................................13

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INTERNATIONAL FINANCIAL MARKETS AND INSTITUTION
Answer to Question 1:
Yield curve
Yield curve can be defined as a curve that will display the rate of interest which is
being associated with the different lengths of contract which is for a specific debt instrument.
It will help in summarizing the usual relationship in-between the time of maturity of the debt
which is considered as the term and the yield which is the interest rate that is being associated
with the term.
Explanation of the Yield Curve
The yield curve is usually upward sloping; the interest rate also increases as with the
increase of the time of maturity. With the help of the yield curve, it is easy to analyze and
understand the economic conditions that will help the investors in the prospect of the
investment (Golub, Grossmass & Poon, 2019) . In general, there are three types of yield
curve that is consisted, they are normal, inverted and flat. All the three graphs are being
described with the help of diagram.
Figure 1 : Yield Curve

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INTERNATIONAL FINANCIAL MARKETS AND INSTITUTION
The graph that is being presented here is stated as the positive yield curve which
shows that the long term yield is much higher than the short term yield. According to the
economists Martin & Ross (2019), if an economy has a normal yield then it will be much
more for the country (Martin & Ross, 2019). It does indicate in the country is that the rate of
unemployment is much lower, the economy is in a growing stage currently. Thus, the desired
results which has been seen in the outcome will show that there will be an increase in the
return of bond as the time goes on (Choudhry, 2019). In the normal yield curve, the investors
will assume at the time of investing on bond is that the economy is in a healthier stage as it
will provide a support to the inflation rate which may cause an increase in the rate of interest.
If the rate of interest increases, then it will provide a better return on the bonds.
Figure 2 : Inverted yield curve
The above diagram that is being presented here, is of the inverted yield curve in which
the long term yield is much lower compared to the short term yield., so it is being indicated as
the sign of recession (Martin & Ross, 2019). In the economy, when the rate of interest of the
short term surpasses the long term, then the inverted yield occurs in the economy. As per the
study of economists, Moti (2019), if there is an increase in the short term interest rates, then