Money Banking and Finance: Portfolio, UK Economy, and Interest Rates

This report provides a comprehensive analysis of money, banking, and finance, encompassing various aspects of financial assessment. It explores the construction of effective and efficient portfolios, including discussions on minimizing risk and maximizing profits through strategies like efficient frontiers. The report delves into the significance of benchmarks, the rationale behind portfolio construction, and the application of strategies such as portable alpha and hedging. Furthermore, it examines the influence of the Bank of England's interest rate decisions on the UK economy, considering factors such as inflation, monetary policy adjustments, and the impact of Brexit. The report also addresses the effects of interest rate changes on housing markets, currency values, and the role of hedging instruments like interest rate swaps and currency forward contracts. Finally, it concludes with a discussion on the importance of flexible exchange rates and the management of monetary policies to ensure economic stability.

Money banking and
finance assessment

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1 ..................................................................................................................................1
Effective portfolio: .....................................................................................................................1
Efficient frontier: ........................................................................................................................1
QUESTION 2 ..................................................................................................................................1
Benchmark...................................................................................................................................1
Rational of portfolio.....................................................................................................................1
QUESTION 3...................................................................................................................................2
Portable Alpha Strategy ..............................................................................................................2
Hedge strategy:............................................................................................................................2
QUESTION 4...................................................................................................................................2
CONCLUSION ...............................................................................................................................4
REFERENCES................................................................................................................................1

INTRODUCTION
Money banking and financial assessment is the process where individual, organisations,
or countries use their money to invest in various manner. Use banking methods to spend their
money and it will also provide the facilities regarding assessment of their finance. Financial
assessment mostly done by the lenders regarding every reverse mortgage borrowers. The
government need to ensure that every individual has enough amount to pay their ongoing cost.
This report include the topics such as minimum variance and efficient portfolio without short
selling restriction. Along with this, it include financial assessment and it's objectives, policies,
portfolio construction and also analyse risk & return performance against benchmark. In addition
it include, how interest rate of Bank of England will affect the UK's economy and it's decision
affected by Brexit.
QUESTION 1
Effective portfolio:
It is that portfolio in which different types of stock has been taken from different sectors
which is helpful to minimise the risk and maximise the profits.
Efficient frontier:
The possible of assets combination in which risk and return are plotted & the line along
the upper edge of this area and it is known as efficient frontier.
QUESTION 2
Benchmark
With the help of benchmark risk factor can be analyse and if the stock cross the
benchmark than it will create the chances of more risk which is not beneficial for the growth of
company.
Rational of portfolio
In the portfolio there are different types of investment yields and distinct returns which
can creates higher or lower risk that can be analyse in the portfolio.
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QUESTION 3
Portable Alpha Strategy
In this strategy beta & alpha are separately manage in the portfolio and the returns has
come from two sources that is systematic source that is considered as beta. The other source is
idiosyncratic that it presented by alpha.
Hedge strategy:
This specific strategy has been used in which stocks have purchase & hold in order to
minimise the risk. By using this strategy capital investment risk can be minimise and it is good
option in front of an investor because risk can be diversified which is helpful to increase the
chances of profits.
QUESTION 4
Bank of England change their base rate in United Kingdom and it guided by the
government who set the targets to achieve. When interest rate is high, it will encourage the
people to save money and discourage borrowers. Reverse action also discourage people to save
less and motivate borrowers to provide landing at cheaper rate. Economic specialist try to control
interest rate because it can create the situation of inflation. For this UK government need to
develop various strategies that helps to maintain stability in the economy. Bank of England raise
interest rate and if will happen when UK leave the EU. Their is a chances of increasing interest
rate about 25 points. If withdrawal deal passed by parliament then it will applicable on economy
affect the UK nation.
If interest rate increase then it will affect the monetary policy where higher rate of
increase cost of debt & repayments of mortgage and people have less amount to be spend . It
reduce the growth of economy and chances of inflation which make UK government to export
more competitive. Increment of interest rate will affect UK's economy and influence the decision
which affect by Brexit. Basically higher rate of interest increase the value of country's currency
and attract foreign investors. It will increase the demand & value of home currency and it build
the relation between higher interest rate and inflation. It affect the will power of spending money
of an individual and it further reduce the chances of inflation. Monetary policies going to
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modified because of the hinger interest rate people will buy or sell government bonds and change
the proportion to save their money in banks reserve.
AD/AS model effect the various exogenous events which include the GDP or price level
where is helps in enlargement of monetary policy. Aggregate supply & demand model help the
country to identity overall supply & demand and it will affect due to increase in interest rate.
IS/LM model is the graphical representation where is shows the relationship between investment
-saving or liquidity-money. Higher interest rate will increase the demand of investment but
reduce the value or cost investment. If Bank of England raise interest rate then it will reduce
economic growth and inflation pressure. Along with this, it affect the people who have loan
because they have to spend higher rate and they having less disposable income. AS curve show
the relation between GDP and different price level and it will be affected due to increase in
interest rate. Generally it will move in upward direction because of increment in interest rates.
LR & SR both affect the UK's economy because LR refer to long run equilibrium and SR refer
short run equilibrium point. In LR, AD or AS interest the point is called LR Equilibrium where
potential GDP is equal to the real GDP. Other hand, SR equilibrium is identify when price level
is equilibrium. In this case, UK's economy in surplus or in shortage condition.
Inflation targeting is a monetary policy where central bank explicit target inflation rate in
medium term and then announce this target to the general public. It is assumption based where
monetary policy can support in long term growth. Change in interest rate will affect the inflation
as well as economic growth. Taylor Rule is valuable descriptive devise where they believes that,
their should be a benchmark for monetary policy. Changes in interest rate will affect the GDP of
UK's economy and amount. No-deal Brexit affect the UK's economy because they revert to
WTO trading rules without transitional period. It will affect in terms of economic growth where
no deal Brexit condition goes bad to very bad. It also affect the currency which goes down and it
can create inflation or affect UK's economy.
Flexible exchange rate affect the economy due to increment in exchange rate and it
prevent slow growth of GDP which fall in net export and increase the the demand of export. As
well as market efficiency affect the economic condition due to uncertainty which build into
economic prospector. Different type of exchange rate will affect which include spot & forward
exchange, nominal v/s real exchange rates. Demand of money will increase due to higher interest
rate. If in the economy, money supply is increased then market interest rate will be reduce and
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similarly if flow of money is low then it increase the market interest rate. Hedging is the
process where investee can minimise their risk through this option. Is is the investment position
where investor offset their potential losses & gains which incurred by the investment companies.
In affect the economic condition of UK because Bank of England will raise the interest rate that
defiantly affect the UK's economy. If rate of interest increase then it impact housing market
because higher interest rate reduce the demand of housing market due to lack of money.
Currently UK is the persistently volatile housing market and further they have to avoid reckless
lending and ensure to provide adequate supply of housing. Reckless mortgage lending decrease
housing price in the UK market.
Interest rate Swaps is the part of fixed income market. These derivatives, typically
exchange or swap and it include the fixed rate, interest payment, floating rate and interest
payment. These are the essential tool for the investors who use this and give their efforts to
hedge, manage risk and speculate. Different rate & risk affect the condition of economy where
they have to manage through hedging system. Currency forward contract is the agreement which
build between two parties for the exchange of currency at fixed rate for the fixed future price.
Because economic conditional not always same, to secure their investment, investor create a
document which help them to be secure from risk. Changes in the interest rate will increase the
risk regarding investor's investment. To prevent this conditions people develop currency forward
contract and it is not affected by the change in interest rate.
CONCLUSION
It has been, concluded that money banking and finance both of these term are crucial
elements for any business therefore it is required to be properly analysed by the responsible
member within on organization. In order to analyses the circumstance portfolio can be develop
that consider a set of minimum variance that consist short selling restriction. There are number of
forces and important elements that are connected to development of portfolio and help to fix a
crucial benchmark that support to make valid and future comparison. In Hugde fund manager are
responsible to manage the develop portfolio in an specific manner so the risk can be reduced. In
conclusion, it has been stated that an important task in to manage monetary policies like, making
modification in interest rate, buying and selling of bonds etc. It is essential that exchange rate
must be flexible that help to reduce the impact of changes in exchange rate on economy. It is
observed that high interest rate can impact the housing rate within a economy.
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REFERENCES
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