Premium Essay

Financial Market

In: Business and Management

Submitted By mamun082
Words 5540
Pages 23
Volume–VII, Number–02, July-December, 2012

Effects of Interest Rate and Exchange Rate on Volatility of Market Index at Dhaka Stock Exchange
DEWAN MUKTADIR-AL-MUKIT * ABSTRACT The paper investigates the effects of the exchange rates and interest rates on stock market performance by using monthly time series data for the economy of Bangladesh, over the period of 1997 to 2010. This study uses econometric techniques of measuring the long and short term relationship between variables using the concept of Cointegration and Error Correction Model and analysis of Variance Decomposition. Causal relationships have been investigated using Granger causality test. By employing Cointegration technique it is observed that in the long run, a one percent increase in exchange rate and in interest rate contributes1.04% increase and 1.71 % decrease in market index respectively. The estimated error correction coefficient indicates that 7.8 percent deviation of stock returns are corrected in the short run. Finally, Granger causality analysis suggests the existence of a unidirectional causality from market index to exchange rate and from interest rate to market index. Keywords: Cointegration, Granger Causality. Exchange rate, Interest rate, DGEN index 1. INTRODUCTION

A well functioning financial system boosts economic growth through proper and efficient allocation of resources. As a part of financial system, the importance and role of stock market towards achieving economic growth is crucial. The functioning of stock market depends on investors’ buying and selling decisions which is influenced by a number of economic factors. Frequent changeability rhythm of stock prices makes themarket considered to be risky one and for which investors are always interested to be informed about impacting factors of stock prices and also the extent of such impact. There are many pieces of research which...

Similar Documents

Premium Essay

Financial Market

...FINANCIAL MARKETS FIN 4040A 1. A financial market is the market for capital, a significant factor of production. The obligations created are in form of financial assets or financial instruments severally called securities. These assets are intangible and offer promises and claims by issuers and holders. A classification of the financial markets will greatly improve our mental constructs....

Words: 1075 - Pages: 5

Premium Essay

Financial Markets

...The markets also provide a facility in which their demands and requirements interact to set a price for such claims. The participants in the financial markets are the borrowers (issuers of securities), lenders (buyers of securities), and financial intermediaries. Financial markets comprise two distinct types of markets: * Money market * Capital market Characteristics of financial markets * Financial markets are characterised by a large volume of transaction and the speed...

Words: 1560 - Pages: 7

Premium Essay

Financial Markets

...What are financial markets? Financial markets are any type of financial transaction that helps businesses grow and investors make money, commonly known as the stock market. There are three elements to the stock market: stocks, bonds, and commodities. “Investing in the stock market is a bet on the future and the future is what concerns the stock market the most. While current events such as natural and human made disasters can cause an immediate reaction in the stock market, what drives long-term trends is the future. The stock market is all about what will economic and political conditions today mean to corporate profits in the future. Current events that shake the market, but have no long term effect on the economy or business climate are often shaken off and market conditions return to the previous conditions”. (Ken Little, About.com Guide). Stocks are shares of ownership of a public corporation that are sold to investors to allow the companies to raise a lot of cash at once. The investors profit when the companies increase their earnings, which keeps the U.S. Economy growing. Mutual funds give you the ability to buy a lot of stocks at once. In one way, this makes them an easier tool to invest in than individual stocks. By reducing stock market volatility, they have also had a calming effect on the U.S. economy. When stock prices go up, bond prices go down....

Words: 502 - Pages: 3

Premium Essay

Financial Market

...Tocqueville was a classical liberal who advocated parliamentary government, but was skeptical of the extremes of democracy The work of Alexis de Tocqueville permit to understand how the financial market works Bastiat says “ If goods do not cross border , soldier do “ Claude Frédéric Bastiat (30 June 1801 – 24 December 1850) was a French classical liberal theorist, political economist, and member of the French assembly. He was notable for developing the important economic concept of opportunity cost, and for penning the influential Parable of the Broken Window. His ideas have gone on to...

Words: 2856 - Pages: 12

Free Essay

Financial Market

...Financial...

Words: 4126 - Pages: 17

Free Essay

Financial Markets

...EFB201  Financial  Markets   Learning  Guide EFB201 Learning Guide 1     Workload  Expectations     The  unit  has  a  two-­‐hour  lecture  with  a  one-­‐hour  workshop/tutorial  each  week.  QUT   Guidelines  are  that  “Eight  to  10  hours  per  unit  per  week  should  be  spent  outside  the   classroom  reading  and  working  on  assignments  and  tutorial  tasks.”  This  unit  covers  a   large  amount  of  material  commensurate  with  the  workload  expectations  described   above.     The  lectures  are  an  integral  part  of  the  course  materials  and  will  contain  spoken  or   written  material  that  is  additional  to  that  in  the  textbook  and  set  readings.  Conversely,   not  all  the  set  textbook  or  other  readings  will  be  covered  in  the  lectures.  In  addition,  you   will  be  expected  to  do  your  own  research  in  respect  of  particular  topics,  and  this  also   forms  part  of  the  unit  materials.    ...

Words: 9061 - Pages: 37

Premium Essay

Financial Markets

...Lessons to be learnt by emerging markets from developed financial markets Name: Course: University: Tutor: Date: Abstract The present regarded industrialized countries are seen to be much enjoying the benefits that the economy is offering. The so called first world countries have continued to experience faster economic growth because of the influence of the stronger and well established both financial and security market. The research paper in it’s entirely, considers the lessons that the emerging financial markets from the developed and the developing can learn from the developed financial institutions. However, the basis of the paper is on U.S, England, Japan and then Germany. Introduction Traditional studies of the above mentioned four countries have continued to place some emphasis on the explanations concerning acceleration of the growth that have continued to occur within their economies. Most of the factors that are considered relate to increased productivity in labor, increased innovation in technologies, expansion in international relationship in trade and revolution n the financial infrastructures. All these occurrences preceded the present development within these countries....

Words: 1669 - Pages: 7

Premium Essay

Financial Market

...Dealer It is a person which work independently Types of Financial Market There are five major types 1 Primary Market 2 Secondary Markets 3 Money Market 4 Capital Market 5 Over the Counter Market (1) Primary Market The market where the new securities are issued or the market where the securities are issued by the company first time. There are two types of issue in primary market. (a) Direct Placement Company offer IPO to investor (b) Indirect Placement...

Words: 507 - Pages: 3

Premium Essay

Financial Market

...Financial Market Homework 1 For 09/30/2014 Azizi Nabil , Ferrary Alexandra , Seneclauze Pierre , Renaud Gigou Review Question (5) : 5. List and explain the three financial factors that influence the value of a business. The three factors that affect the value of a firm's stock price are cash flow, timing, and risk. The Importance of Cash Flow: In business, cash is what pays the bills. It is also what the firm receives in exchange for its products and services. Cash is therefore of ultimate importance, and the expectation that the firm will generate cash in the future is one of the factors that gives the firm its value.(page 9-10) The Effect of Timing on Cash Flows: Owners and potential investors look at when firms can expect to receive cash and when they can expect to pay out cash. All other factors being equal, the sooner companies expect to receive cash and the later they expect to pay out cash, the more valuable the firm and the higher its stock price will be.(page 9-10) The Influence of Risk: Risk affects value because the less certain owners and investors are about a firm's expected future cash flows, the lower they will value the company. The more certain owners and investors are about a firm's expected future cash flows, the higher they will value the company. In short, companies whose expected future cash flows are doubtful will have lower values than companies whose expected future cash flows are virtually certain....

Words: 569 - Pages: 3

Free Essay

Financial Markets

...FINANCIAL MARKETS AND INSTITUTIONS The core purpose of the following report is to analysis 5 of the top British Banks based on their total assets and by looking at their key balance sheet items, income statement items and financial ratios.. Most of the banks in the UK are MNCs. The top 5 banks in the United Kingdom have 90 percent market share. Here is the list of the top 5 banks in the UK: 1. HSBC 2. Lloyds Banking Group PLC 3. Standard Chartered Bank 4. Barclays 5. Royal Bank of Scotland Group Analysis of the key balance sheet and income items is as follows: Loans is one of the most important balance sheet items, as the ability to pool deposits from many sources that can be lent to many different borrowers creates the flow of funds inherent in the banking system. Gross loan is the total amount of issued credits given to banks during the accounting period. We can see from the graph below that HSBC maintained the most steady gross loan figures between 2008 -2012. This was despite the economic depression of 2008 by which RBS was evidently affected by the most with their gross loan figure being the lowest in 2011 of only £24979 million. One of the reasons for this is that UK taxpayers bailed out RBS in with the government owning over 80% of the business while HSBC avoided government assistance. Net Income is the amount of profit money a business has after determining total gross business income and deducting all expenses, taxes, depreciation, and interest....

Words: 2283 - Pages: 10

Premium Essay

Financial Markets

...According to Bain, the following theories have been developed to explain how financial intermediaries reduce/solve these market imperfections: Asset transformation Transaction costs reduction Liquidity insurance Asymmetric information Asset transformation According to Booth (2004), to understand the existence of FIs, it is important to stress their role in transforming different types of assets into others, a method of asset transformation. A FI concurrently suits both...

Words: 683 - Pages: 3

Premium Essay

Financial Markets

...________________________________ Student Name ________________________________ Student ID ________________________________ Signature ________________________________ Seat No EXAM COVER SHEET NOTE: DO NOT REMOVE this exam paper from the exam venue EXAM DETAILS Course Code: Course Description: BAFI1002 Financial Markets Total number of pages (incl. this cover sheet) 12 ALLOWABLE MATERIALS AND INSTRUCTIONS TO CANDIDATES 1. Write your full name and student number on each exam booklet together with the number of exam books used. 2. Students must not write, mark in any way any exam materials, read any other text other than the exam paper or do any calculations during reading time. 3. All mobile phones must be switched off and placed under your desk. You are in breach of exam conditions if it is on your person (ie. pocket). 4. This is a CLOSED BOOK Exam. 5. Commence each question on a new page. Carry out the instructions on the front cover of the exam script book and the front of this exam paper. 6. Non text storing calculators are allowed. 7. Bi-lingual dictionaries are not allowed. 8. Write your full name and student number on each examination booklet and on the multiple choice answer sheet. Students must not write during reading time 9. The exam comprises two sections. Section A comprises 8 discussion questions from which you must answer any four. Section B comprises 20 compulsory multiple choice questions. 10....

Words: 2366 - Pages: 10

Premium Essay

Financial Markets

...Securities with risk exposure to housing market plummeted, causing great damage to financial institutions across the globe. Stock markets all over the world suffered large drops in 2008 and early 2009 as questions arose regarding the solvency of major financial institutions and liquidity in the credit markets dried up. Worldwide growth slowed with the tightened credit markets and declines in international trade. Governments, central banks, and international organizations...

Words: 2443 - Pages: 10

Premium Essay

Financial Markets

...Statement on Monetary Policy – February 2012 Box D: Covered Bond Issuance by Australian Banks Covered bonds are on-balance sheet asset-backed securities issued by financial institutions. Investors in covered bonds have a preferential claim on a pool of assets (called the cover pool) in the event that the issuing institution fails to make the scheduled payments on the covered bond. If the cover pool is insufficient to meet the issuer's obligations to investors, they have an unsecured claim on the issuer for any residual amount.[1] Covered bonds typically have a higher credit rating than that of the issuer because the cover pools are usually comprised of high-quality assets such as prime mortgages, covered bond holders rank above unsecured creditors, and extra collateral is held in the cover pool. There is a well-developed global market for covered bonds, particularly in Europe. In Australia, however, authorised deposit-taking institutions (ADIs) have only recently been permitted to issue these bonds, following the passing of legislation – the Banking Amendment (Covered Bonds) Act 2011 – in October 2011. Under the new legislation, there is a cap on covered bond issuance by ADIs to limit the subordination of depositors to covered bond investors. An ADI must limit the value of its cover pools to a maximum of 8 per cent of its assets in Australia....

Words: 5181 - Pages: 21

Premium Essay

Financial Markets

...Financial Markets Table of Contents Introduction 1 Overall Canadian Economy 1 Equity Market Analysis: 2 Bond Market 3 Money Market 4 Portfolio Allocation 5 Risk Analysis 5 Appendix 1: 6 Appendix 2: 6 Appendix 3: 9 Introduction The objective of this paper is to determine how market institutional portfolio managers should properly allocate their funds amongst the different financial markets. We will focus only on the Canadian money, bond and stock markets over the following year until the second quarter of 2014. Following a top-down approach, we will first discuss the strengths and weaknesses of the overall Canadian economy. We will then perform a similar analysis of the 3 financial markets and will conclude by choosing an appropriate asset allocation and determining the return and risk forecasts of the portfolio. Overall Canadian Economy According to the Bank of Canada, the Canadian economy is experiencing material slack, heightened competitive pressures in the retail sector and slower increases in regulated prices, resulting in a total and core CPI inflation of 1.2% in the second quarter of 2013. As the economy returns to full capacity, inflation is projected to rise gradually to 1.8% by the second quarter of 2014 (refer to appendix 1). The Bank of Canada also mentions that the exchange rate of the CAD is expected to remain at around USD$0.98 over the following year....

Words: 2174 - Pages: 9