Essay about financial markets

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RSM 230: Financial Markets
Assignment 1 – Fall 2013
Due October 18, 2013 at 4pm

Directions:
This assignment is to be handed in BOTH electronically on Blackboard and in hard copy. Both soft and hard copies of the assignment are due by 4p.m. on Friday October 18, 2013. The hard copy of the assignment should be delivered to the Rotman Commerce Office at 125 St. George Street (corner of Bloor and St. George Street). The softcopy should be submitted online through Blackboard.

All assignments must be typed and stapled with the front page filled in with student names and numbers, group number, and professor name.

Your RSM 230 class will be held in the Rotman Finance & Trading Lab. Some of the data needed in the sections below can be obtained online and other data will be available through the Finance lab. You may need to visit the lab after class hours to download the data needed and lab instructors and assistants can help you with this if needed.

In your answers, please restrict yourself to answering within the space provided. Questions should be answered on the page provided with the same questions answered on each page (ie. on page 2, students should answer Question 1a-d, on page 3 students should answer Question 2a, etc…). Please include a blank grade summary sheet as printed at the end.

Group # __36___________________________

Professor _Susan Christofferson ____ _____

Student Names
Student Numbers
Zhuoli Hu
999979297
Xiaoning Liu
999911751
Tongxin Zhu
999944342
Yezhou Zhang
999783970
Question 1 – Definitions - some research may be required (10 marks)
Please provide a brief description of the following:

(a) (2 pts) Real return bond

It is the government bond to pay for a rate of return in order to adjust for inflation. The purchasing power is maintained regardless of the future rate of inflation.

(b) (2 pts) Prime rate vs. Overnight rate

Prime rate: it is the interest rate that commercial banks charge customers who have good credits, because they have little chance of defaulting, the bank can charge them a rate that is relatively lower.

Overnight rate: The rate at which major participants in the money market borrow and lend one-day funds to each other.

(c) (2 pts) On-the-run vs. Off-the-run rates

On the run rate: the interest rate of on-the-run bonds, which refer to the most frequently traded Treasury security of its maturity.Because on-the-run issues are the most liquid, they typically trade at a slight premium and therefore yield a little less than their off-the-run counterparts

Off the run rates: the interest rate of off-the-run bonds, which refer to Treasury bonds and notes issued before the most recently issued bond or note of a particular maturity. Because off-the-run securities are less frequently traded than the on-the run securities, they typically are less expensive and carry a slightly greater yield.

(d) (4 pts) What is LIBOR and what problems have been raised with LIBOR over the past several years?

LIBOR (The London Interbank Offered Rate) is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks.

In June 2012, multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by member banks connected to the rate submissions, leading to the LIBOR scandal.
Question 2 – Canadian Money Market and Bond Rates (30 marks)

To answer this question, you need to obtain data from the Bank of Canada website (http://www.bankofcanada.ca/ ). Look for “Rates and Statistics” and then “Interest Rates”. For all written components of the question, please keep answers succinct and to the point.

(a) (14 pts) Please fill out the table below with the appropriate Canadian interest rate data on each of these four dates: June 30, 2010; June 30, 2011; June 29, 2012; June 28, 2013.

Securities
June 30, 2010
June 30, 2011
June 29, 2012
June 28, 2013
Overnight
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