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Money and Capital Markets - Assignment

Added on - 13 Mar 2020

In this document, we will discuss the Australian banking system which was largely unaffected by theGlobal Financial Crisis (GFC). The resilience of the Australian banking industry stems from the regulatory structure that underpins the financial system.

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RUNNING HEAD: Money and Capital Market1Money and capital Market
Money and Capital Market2Que 2)Litterman and Schenkman (1991) have argued in their article that yield curve is ofthree types and these types of yield curve make an impact over the bond return of thecompany. It has been argued by Gürkaynak, Sack and Wright, (2007) that with the incrementin the time, the return of the bonds also get enhance and vice versa. Diebold, Rudebusch andAruoba, 2006 has argued that the slope position of yield curve get change with the changesinto the time period if the investment has been done for more time than the return would alsobe more and vice versa. Further, it has been argues by some researchers that level yield curvedepict about the balance in risk and return of bond at the same time, the yield curve of slop orsteepness depict about the less return with the time, this slope takes place especially, at thetime of breakdown of the economy or at the time of influences from another country.Further, it has also been found that the yield curve of curvature depict about the highreturn with the time, this slope takes place especially, at the time of enhancementof theeconomy or at the time of influences from another country.Option 1Option 2Face value100Face value100Terms5Terms (Semi years)10Coupon rate8.00%Coupon rate8.00%Yield to maturity8.00%Yield to maturity8.00%interest3.50interest5.00Yield to maturity8.00%Yield to maturity (Halfyearly)4.00%Price of bond$82Price of bond$50Amount needed$ 15,423.00Amount needed$ 15,423.00Number of bonds$188.01Number of bonds$ 308.46Company need to payat maturity$ 18,801.02Company need to payat maturity$ 30,846.00The above calculations depict about the same bond, but it has been analyzed that withthe time, the price of the bond has been lowered and the return over the bonds has beenenhanced. It has also been found that if the investment would be done for 5 years than$18,801 would be get by the holder whereas if the investment would be done for 10 yearsthan $ 30,846 will be get by the holder.
Money and Capital Market3Thus it has been found that the statement of Litterman and Schenkman (1991) isquite true.Que 3)Yield curve:As discussed, yield curve is a line which plots interest rate upon it, at a particulartime, of some bonds which have equivalent credit quality but different maturity dates. Astudy has been performed over Australia and Netherlands bonds to analyze the bondcondition of these countries.Through analyzing the Australia’s bond yield graph, it has been found that the returnof the company is enhancing rapidly with the increment in the time period, it has been foundthrough this study that the return was 1.45 in first year and after 15 years the return has been2.924 which depict a very high increment in the returns.This growth has taken place due to rapidly increment in the economy state ofAustralia. It has been found that the GDP of the company has been increased from previousyears and thus the return over bonds has also been enhanced.(, 2017)Through analyzing the Netherland’s bond yield graph, it has been found that thereturn of the company has been almost similar in the beginning of 3 years, it has been foundthrough this study that the return was in negative figures and after 4 years, the positive
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In brief,  it has been found that the Australia and Netherland, both the company’s share has been enhanced from the last year due to changes in the economic condition and a positive increment has taken place.