Indian Money Market & It’s Trend Analysis

Page 3: Introduction to the Financial System Page 7: Commercial Banks Page 12: The Share Market and the Corporation Page 15: Corporations Issuing Equity into the Share Market Page 19: Investors in the Share Market Page 24: Short-term Debt Page 28: Medium- to Long-term Debt Page 32: Interest Rate Determination and Forecasting Page 37: The Foreign Exchange Market Page 40: Factors that Influence the Exchange Rate Page 42: Futures Contracts and Forward Rate Agreements Page 47: Options

The exchange rates risk that is associated with economic, transaction, and translation exposure in Indian market. From the analysis, anticipate the fluctuations that seem to occur in the next 24 months

Since people always prefer money right now to the present prospect of getting the same amount of money some time in the future, the present good always commands a premium in the market over the future. This premium is the interest rate, and its height will vary according to the degree to which people prefer the present to the future, i.e., the degree of their time-preferences. (Ebling, 1996, p.82)

In this paper, we will be using the log-log model. The log-log model used for the demand for wealth (attuned for inflation). We will be using the M1, as a display, for demand on wealth and interest rate as the illuminating variable affecting the demand for wealth. Using the regression, we will study the hypothesis. For this paper, the hypothesis used will talk about the connection between money and the interest rate. The null hypothesis, in this case, will be the interest affecting the demand for money in the economy. The data that we will be reviewing is from October 2008 to October 2011, 3 years worth of data. This connection will give us the basic understanding of the performance of the monetary policy in US economy after the crisis.

A macroeconomic item (or factor) may be generally categorized as anything that influences the direction of a particular large-scale market (Investopedia, n.d.). For this analysis, the macroeco-nomic factor shall be interest rate (i.e. discount rate). The following sections that scrutinize the implications of changes to interest rates to the Company’s Present Value* (PV), based on its Free Cash Flows* (FCF); discuss the impact of an issue within the overall stock market on the Com-pany’s stock valuation numbers, other financial variables, or its overall portfolio management; and analyze and discuss the impact of an external factor to the Company.

1. As per the IBIS report, the rate of interest are rising in very short period but expected to level out at

In order to analyse the impacts of an increase in interest rates on the loanable fund market, the reasons behind the possible rate rise in the near future will be looked upon.

How an attempt to avoid a bubble, led to a crash that brought a country near to complete collapse.

According to RBA, the interest rate has remained unchanged at low 2.0 per cent in the previous period. This will be welcomed by housing investors. The low interest rate will discourage people to save and put their money in banks, and encourage them to start investing their money in property or other sources. A recent increase in dwelling investment, capital city and retail sale volumes can be explained by this. Housing credit has increase to around 7% and it is continue to be driven by investor. Business financing, on the other side, is growing slowly in June quarter and equivalent to 3% of GDP. Business credit growth has moderated over June quarter following by stronger growth in previous quarters. The cost of intermediated borrowing money for small and large business declined as a result of a decrease in the cash rate.

The interest rate on three-month Treasury bills fluctuates more than the other interest rates and is lower on average. The interest rate on Baa corporate bonds is higher on average than the other interest rates.

The impact of the change interest rates and inflation has a persistent impact on the well being of any given society. For this purpose it is the understanding that each individual in society should have an understanding of what such changes bring fourth for the man on the street. In this introduction, we are going to introduce certain key points to remember when dealing with interest rate- and inflation changes.

We know that in the long run the real interest rate does not depend on monetary policy because money is neutral; i.e. the price level is affected by the money supply. However, the nominal rates of interest do depend on monetary policy because monetary policy affects the rate of inflation, which in the long run is determined by the growth of the money supply. It has been pointed out that countries with higher money growth typically have higher nominal interest rates than countries with lower money growth rates because they have higher inflation. What this means is that country A and B have the same real rate of interest, but country A has a higher inflation rate, it will also have a higher nominal interest rate.

We can see that they have positive relationship or upward sloping trend. It means that if interest rate rises, national saving will also increase. It is one of the requirements of small open economy.

The most apt paper in this domain was written by Jayant Verma (1996) in IJAF. This paper has argued that the most practical and sensible way of valuing interest rate options in India is to use a single factor lattice based model. Single factor models (which are based on the short term interest rate) are to be preferred not only for their greater simplicity, but also because multi-factor models would require knowledge of the dynamics of long term rates which is not available in India at present. Within the class of single factor lattice based models, the Black-Derman-Toy model emerged as the most serious contender because its assumptions are

The leading foreign exchange market in India is Mumbai, Calcutta, Chennai and Delhi is other centres accounting for bulk of the exchange dealings in India. The policy of Reserve Bank has been to decentralize exchanges operations and develop broader based exchange markets. As a result of the efforts of Reserve Bank Cochin, Bangalore, Ahmadabad and Goa have emerged as new centre of foreign exchange market