Effect of Kibor on Its Five Lags
CHAPTER: I
1.1.1 INTRODUCTION
In this thesis it will be analyzed that due to increased demand in interest rate and transaction of money market is totally dependent on KIBOR rate, the certainty of KIBOR affecting its five lags will be evaluated. To conduct this study KIBOR time was considered an independent variable and 5 lags were considered dependable variable.
By applying regression analysis, using backward method where the most insignificant variable is deleted one by another and finally results are produced, it was concluded that when regression was run using all variables together we found the model has strong relationship between dependent and independent variables. Secondly when we use regression analysis applying to individual variable separately it revealed that only variable Kibor t_1 and Kibor t_2 has significant relation with the dependent variable and all other has insignificant values.
The KIBOR rate is given by National Bank of Pakistan on daily, weekly, monthly and on 1,2 and 3 yearly basis to all the commercial banks of Pakistan so that they charge interest to their customers on that basis. This rate is inflation adjusted rate and then banks by adding 2 or 3% in KIBOR rate charge their customers for their profit.
Kibore = Karachi Interbank Offer Rate
1.1.2 Background of KIBOR
KIBOR means Karachi Interbank Offer Rate. The KIBOR was launched in 2001 and in 2004 its scope and operation was expanded. Since it has started, almost every bank of the country preferred to devise its own mechanism for determination of KIBOR and it evoked serious reaction from private sector.
The SBP in consultation with the Pakistan Banks Association has introduced KIBOR as a reference rate for corporate lending to make interest rates more market-driven. Bankers say that treasury bills rates are no longer reflective of the market-based interest rates.
Currently banks quote KIBOR-based rates for up to six months but they have assured the SBP of extending the
1.1.1 INTRODUCTION
In this thesis it will be analyzed that due to increased demand in interest rate and transaction of money market is totally dependent on KIBOR rate, the certainty of KIBOR affecting its five lags will be evaluated. To conduct this study KIBOR time was considered an independent variable and 5 lags were considered dependable variable.
By applying regression analysis, using backward method where the most insignificant variable is deleted one by another and finally results are produced, it was concluded that when regression was run using all variables together we found the model has strong relationship between dependent and independent variables. Secondly when we use regression analysis applying to individual variable separately it revealed that only variable Kibor t_1 and Kibor t_2 has significant relation with the dependent variable and all other has insignificant values.
The KIBOR rate is given by National Bank of Pakistan on daily, weekly, monthly and on 1,2 and 3 yearly basis to all the commercial banks of Pakistan so that they charge interest to their customers on that basis. This rate is inflation adjusted rate and then banks by adding 2 or 3% in KIBOR rate charge their customers for their profit.
Kibore = Karachi Interbank Offer Rate
1.1.2 Background of KIBOR
KIBOR means Karachi Interbank Offer Rate. The KIBOR was launched in 2001 and in 2004 its scope and operation was expanded. Since it has started, almost every bank of the country preferred to devise its own mechanism for determination of KIBOR and it evoked serious reaction from private sector.
The SBP in consultation with the Pakistan Banks Association has introduced KIBOR as a reference rate for corporate lending to make interest rates more market-driven. Bankers say that treasury bills rates are no longer reflective of the market-based interest rates.
Currently banks quote KIBOR-based rates for up to six months but they have assured the SBP of extending the
References: [1] Ma Siddiqui (2009) Statistical irrelevance of Kibor to the vitality of Pakistan. [5] Initkhab A and Dr. R Salaria, Determinance and dynamics of Dividend policy: Evidence from Pakistan Banking Sector. JISR V-7, 2009. [6] Green, W. H. (1997) Econometric Analysis, 3rd Edition, New Jersy. [7] http//www brecordeor.com/index.php. [12] E. Erraise and F. Mercurio, Yes, Libor Models can capture Interest Rate Derivation Skew: A simple modeling Approach (2005)