国际货币与金融经济学课件05

1、Chapter 5: Interest Yields, Interest Rate Risk, and Derivative SecuritiesI. Chapter OverviewChapter 5 begins with a presentation of the concept of discounted present value and how it relates the market price of a bond to its yield. This discussion is followed by an explanation of how term to maturit

2、y affects interest-rate risk. The next section introduces the term structure of interest rates and the representation of the yield curve. This section proceeds with a discussion of various theories of the term structure and with an evaluation of the extent to which they are able to explain regular f

3、eatures of the yield curve, such as its upward slope. The theories discussed are (1) the segmented markets theory, (2) the expectations theory and (3) the preferred habitat theory. Finally, the section ends with an elaboration of the various sources of interest rate risk, and other reasons for inter

4、est rate differentials between instruments with similar maturities. These include (1) differences in the degree of default risk, (2) differences in the degree of liquidity and (3) differences in tax obligations. The following section examines how excess returns arising from failure of uncovered inte

5、rest parity contribute to differences among national interest rates. It explains the concept of excess returns, discusses recent evidence concerning excess returns for various nations, and evaluates how varying sizes of excess returns can help explain international interest rate differentials.The ne

6、xt section defines real interest rates. It explains how combining the purchasing power parity and uncovered interest parity conditions leads to a real interest parity condition, which in principle can be used to provide a measure of international market arbitrage.The chapter then turns to a discussi

7、on of ways in which investors can hedge against interest rate risk using derivatives. The section points out that forward exchange contracts are simply one example of a derivative security. Just as investors use forward exchange rate markets to hedge against exchange risk, investors can use derivati

8、ve securities that are based on forward interest rates to hedge against interest rate risk. The chapter then describes some of the most common forms of available derivatives, such as interest rate futures, stock index futures, and currency futures. The uses of currency futures, options and swaps are

9、 also discussed. The chapter ends with a brief discussion of the types of risks associated with derivatives.II. Chapter OutlineA. Interest Rates1. Instrument Yields and Financial Instrument Pricesa. Interest Rates and Discounted Present Valueb. Discounted Present Value and the Market Price of Bondsc

10、. Perpetuities and the Relationship between Interest Yields and Bond Prices2. Term to Maturity and Interest-Rate Risk3. Term Structure of Interest Ratesa. Yield Curvesb. Segmented Markets Theoryc. The Expectations Theoryd. The Preferred Habitat Theory4. Risk Structure of Interest Ratesa. Default Ris

11、kb. Liquidityc. Tax Differences B. Interest Rate DifferentialsExcess Returns and Failure of Uncovered Interest Parity1. Breakdowns of Uncovered Interest Parity and Excess Returnsa. Excess Returnsb. Evidence on Excess Returns2. Accounting for Differences in Excess Returns to Help Explain Interest Rat

12、e Differences C. Real Interest Rates and Real Interest Parity 1. Real Interest Rates: The Fisher Equation2 . Real Interest Paritya. Combining Relative Interest Parity and Uncovered Interest Parityb. Deviations from Real Interest Parity as a Measure of International Market ArbitrageD. Hedging, Specul

13、ation, and Derivative Securities1. Possible Responses to Interest Rate Riska. Some Strategies for Limiting Interest Rate Riskb. Hedging2. Derivative Securitiesa. Hedging with Forward Contractsb. Speculation with Derivativesc. Speculative Gains and LossesE. Common Derivative Securities and Their Risk

14、s1. Forward Contracts2. Futuresa. Interest-Rate Futuresb. Stock-Index Futuresc. Currency Futures1) Hedging with Currency Futures2) Daily Futures Settlement3. Optionsa. Stock Options and Futures Optionsb. Currency Options1) Limited Losses and Potential Profits from Using Currency Call Options2) Limit

15、ed Losses and Potential Profits from Using Currency Put Options3) Netting4. Swaps a. Currency Swaps b. Types of Swaps5. Derivatives Risks and Regulationa. Measuring Derivatives Risksb. Types of Derivatives RisksF. Chapter SummaryIII. Fundamental Issues1. How are interest yields, financial instrument

16、 prices, and interest-rate risk interrelated?2. Why do market interest yields vary with differences in financial instruments terms to maturity and risks?3. What factors explain why international interest rate differentials are often inconsistent with the uncovered interest parity condition?4. What a

17、re real interest rates, and how can real interest rate differentials serve as indicators of the extent to which international markets are open to arbitrage?5. What are derivative securities?6. What are the most commonly traded derivative securities?IV. Chapter Features1. Management Notebook: Why Unc

18、overed Interest Parity May Hold, But Not for Very LongThis management notebook considers one theory for why uncovered interest parity rarely appears to hold, which is that the time immediately before interest returns are about to be received by holders of financial instruments is when the greatest a

19、rbitrage opportunity exists. It discusses recent research by two Federal Reserve economists indicating that the uncovered interest parity condition indeed appears more likely to be satisfied during the last few minutes before instruments mature.For Critical Analysis: The interest rate on this financ

20、ial instrument and the interest rate on a similar foreign instrument cannot change during this time just before transmission of interest payments to the holders of these instruments. Exchange rates can still adjust in foreign exchange markets, however.2. Management Notebook: Bad Days for the BadlaTh

21、e subject of this management notebook is a traditional method used in Indian financial markets to carry forward trades of commodities, stocks, or currencies without engaging in final settlement. It discusses the fact that recently introduced Western-style futures contracts appear to be gradually rep

22、lacing this informal type of futures mechanism.For Critical Analysis: Traders tend to prefer lower prices (and hence higher returns) but also are averse to risk. If Western-style futures contracts are sufficiently less risky, this can help explain why they have tended to crowd out badla even when th

23、e latter instruments trade at lower prices.3. Management Notebook: Following the Money in Derivatives MarketsThis management notebook provides comparative data on derivatives traded in organized exchanges and in over-the-counter (OTC) markets. It provides information about which types of derivatives

24、 are most commonly used. For Critical Analysis: The three key factors are likely to be the price of the derivative security, the risks associated with its use, and the transactions costs entailed in purchasing the derivative and managing the instrument over the life of the contract.V. Answers to End

25、 of Chapter Questions1. Given that: PB = C/(1+R) + C/(1+R)2 + C/(1+R)3 + C/(1+R)4 + .;multiply each side by (1+R): PB (1+R) = C + C/(1+R) + C/(1+R)2 +.;and subtract PB from each side: PB (1+R) - PB = C + C/(1+R) + C/(1+R)2 +. - C/(1+R) + C/(1+R)2 +.;Simplifying: PB * R = C.Therefore, PB = C/R.2. In

26、this situation, annual yields decline as the term to maturity increases, which means that the yield curve slopes downward. According to the expectations theory of the term structure of interest rates, this situation arises because bond-market traders anticipates that short-term interest rates will f

27、all sharply. Thus, an average of current and future short-term rates, which, when added to any term premium applicable to a longer maturity, is lower than the current short-term rate.3. Yes, the excess return on the German government bond equals 3.5 percent (5 percent 3 percent) = 1.5 percent. 4. Pa

28、rity Conditions:a. Using uncovered interest parity, R - R* = (S+1e - S) / S. Because the left-hand-side is negative, we would expect the right-hand side to be negative, indicating a domestic currency appreciation.b. Using relative PPP, B-B* = %)S. Because the left -hand-side is negative, we would ex

29、pect the right-hand side to be negative, indicating a domestic currency appreciation.5. The domestic real interest rate is 5 percent less 2 percent, or 3 percent. The foreign real interest rate is 6 percent less 4 percent, or 2 percent. Real interest rates are not equal, so the real interest parity

30、condition does not hold. We would expect funds to flow into the domestic country and out of the foreign country, which would drive the domestic real interest rate down and the foreign real interest rate up. 6. In contrast to forward currency contracts, currency futures require delivery of standard q

31、uantities of currencies. In addition, holders of currency futures experience profits of losses on the contracts during the entire period before the contracts expire, whereas profits or losses occur only at the expiration date of a forward currency contract.7. A currency future already is a derivativ

32、e, because its value varies with the exchange rate. The value of a currency futures option, in turn, depends on the underlying value of a currency futures contract, so its value is derived from the futures derivative. In this way, a currency futures option is a derivative of a derivative.8. a. The c

33、ompany owes 500,000 Sfr and is concerned about the future spot exchange value of the U.S. dollar-Swiss franc. It can therefore purchase future contracts to set a limit to its potential exchange rate losses.b. The Sfr is purchased in 125,000 franc increments. Therefore, the firm would want to purchas

34、e 500,000/125,000 = 4 futures contracts. Given the initial margin on a franc contract, the total initial margin the firm establishes is: 4($1,688) = $6,752. The daily margin changes are as follows: First: (0.6252 - 0.6251)(125,000)(4) = +$50. Therefore its margin equals $6,802.Second: (0.6127 - 0.62

35、52)(125,000)(4) = -$6250. Therefore the margin would fall to $552. However, the maintenance margin is equal to $1,250. Thus, the margin will equal $1,250. Third: (0.6115 - 0.6127)(125,000)(4) = -$600. Again, the margin must remain at $1,250.Fourth: (0.6806 - 0.6115)(125,000)(4) = -$1450. Again, this

36、 daily change would fall beneath the maintenance margin. Thus, it remains at $1,250.c. As the dollar continues to appreciate relative to the Swiss franc, the value of the futures contract falls. However, the cost of 500,000 franc payment is becoming cheaper on terms of the U.S. dollar.9. a. The call

37、 option is currently out of the money.b. (0.0188)(62,500) = $1,175($1,175)(8 contracts) = $9,400 Net ProfitBreak Even0.9600.9801.020.9988In the moneyAt the moneyOut of the money0Net Loss9,40010,600c. At S = $0.96/ the option is not exercised and the firm is out $9,400At S = $1.02/ the option is exer

38、cised. The firm earns $10,600At S = $0.9657/, the firm does not exercise the option and is out $9,400d. Break even: $0.9988/e. See Diagram given in part (b).10. The pros and cons of forward contracts and swaps lie within how each works. A forward contract can be arranged between a purchaser and a se

39、ller, and is dependent upon each participants beliefs of what will happen in the future. Sometimes it can be difficult to match counterparties to such contracts. Swaps, on the other hand, directly match traders who require flows of currencies held by one another. Swaps may also allow borrowers to re

40、ceive better loan rates by issuing debt in their home currency rather than in a foreign currency; thereby potentially avoiding a risk premium. Considerations of the reason for the long position on a currency and which currency is at issue will influence the decision of which derivative to use. VI. M

41、ultiple Choice Questions1. The amount of credit extended via the purchase of a financial instrument is theA. principal.B. front load.C. sum of the coupons.D. present discounted value. Answer: A2. To calculate the price of a financial instrument, one must find the A. present discounted value of the s

42、tream of coupon payments and principal.B. principal plus the present discounted value of the coupons.C. sum of the coupons divided by the principal.D. sum of the coupons plus the principal. Answer: A3. A bond with no fixed maturity date is called aA. discount bond.B. callable bond.C. treasury bill.D

43、. perpetuity. Answer: D4. A bond with an infinite payment life will have a priceA. equal to the present discounted value of its principal.B. equal to the coupon amount divided by the interest rate.C. equal to the coupon amount divided by one plus the interest rate.D. that is arbitrarily high, as it

44、will produce coupon payments forever. Answer: B5. Suppose the price of a perpetuity is $1,000 and that the perpetuity pays a coupon of $60 per year. The interest rate on this bond isA. 0.06 percent.B. 0.60 percent.C. 6 percent.D. 60 percent. Answer: C6. Suppose the interest rate on a perpetuity is 5

45、 percent, and its price is $1,500. The annual coupon must therefore equalA. $75.B. $300.C. $750.D. $30,000. Answer: A7. Suppose a perpetuity pays $100 per year and its interest rate is 8%. Its price is equal toA. $80.B. $125.C. $800.D. $1,250. Answer: D8. Zero coupon bonds have the distinguishing fe

46、ature that theyA. have an indefinite life.B. pay a lump sum at maturity.C. are issued only by the Treasury.D. pay only coupons that carry an interest rate equal to the real interest rate. Answer: B9. Interest-rate risk arises becauseA. shorter terms to maturity expose bonds to greater risk of capita

47、l loss when interest rates rise.B. shorter terms to maturity expose bonds to greater risk of capital loss when interest rates fall.C. longer terms to maturity expose bonds to greater risk of capital loss when interest rates rise.D. longer terms to maturity expose bonds to greater risk of capital los

48、s when interest rates fall. Answer: C10. The yield curve displays the relationship among yields on bonds that differ only in theirA. country of origin.B. terms to maturity.C. bond rating.D. default risk. Answer: B11. The segmented markets theory is grounded in the assumption thatA. inflation will be

49、 prevalent in only certain long-term bonds.B. investors have identical preferences for all bond maturities.C. bonds with different maturities are nonsubstitutable.D. domestic investors prefer domestic bonds. Answer: C12. An investor using the expectations theory would buy a two-year bond at the pres

50、ent time only if its yield isA. greater than or equal to the average of the one-year spot rate and the expected spot rate a year later.B. less than the average of the one-year spot rate and the expected spot rate a year later.C. greater than or equal to the expected spot rate a year later.D. greater

51、 than or equal to the one-year spot rate. Answer: A13. The preferred habitat theory suggests that investorsA. have a preference for domestic over foreign bonds.B. will only select bonds over a small range of terms to maturity.C. have a preferred maturity length but are willing to move away from this

52、 if the interest rate differential is high enough.D. prefer, all else being equal, to hold the bonds issued by a particular group of firms in a region of the world with a shallow yield curve. Answer: C14. Because of the possibility of default and low liquidity, some bonds carryA. no premium.B. a ris

53、k premium.C. a margin account.D. a lower interest rate. Answer: B15. The primary reason that municipal bonds earn a lower interest rate than treasury bonds is thatA. municipal bonds have less risk.B. treasury bonds are in greater supply.C. municipal bonds are often serial type bonds.D. the interest

54、earned on municipal bonds is tax-exempt. Answer: D16. Reinvestment risk arises from a situation in whichA. long-term instruments prevent investors from acting to take advantage of increases in interest rates.B. an investor cannot be guaranteed the same interest rate when rolling over short-term inst

55、ruments.C. the investor suffers from an inability to liquidate short-term instruments at opportune times.D. an instrument cannot be transferred back into the domestic currency immediately. Answer: B17. The real interest rate is defined as theA. nominal interest rate plus the expected rate of price inflation.B. expected rate of price inflation minus the nominal interest rate.C. nominal interest rate minus the expected rate of price inflation.D. nominal interest rate divided by the expected rate of price inflation. Answer: C18. Using t