Interest Rate

TABLE OF CONTENTS

Executive summary ………………………………………………………8

1. Project Profile ………………….…………………………………………9

2. Introduction……………………………………………………………...10

3. Theoretical aspects………………………………………………………13

4. Review of the Literature ……..……………………………………..…..16

5. Determinants of yield curve…………………………………………..…19

6. Analysis………………………………………………………………….31

7. Findings………………………………………………………………….37

8. Bibliography …………………………………………………………….38

9. Appendices ……………………………………………………………...39

LIST OF FIGURES

Figure 1: Time series of the yield of the treasury bills…..………………….………...21

Figure 2: Time series of the Spread of the treasury bills………………….….…….....22

Figure 3: Time series of the yield of the treasury bills and WPI index….……………24

Figure 4: Relation between yield and GDP ………………………………….…….…25

Figure 5: Relation between yield and SENSEX ……………………………..……….27

Figure 6: Relation between yield and PLR …………………………………..……….27

Figure 7: Relation between yield and CALL RATE …………………………..……..28

Figure 8: Relation between yield and GDP ……………………………………..……29

Figure 9: Relation between yield and rupee per dollar ………………….....................29

EXECUTIVE SUMMURY

The purpose of this paper is to provide an overview of recent developments in Indian interest rate yield structure and to describe some of the major factors which have driven these developments.

Short-term interest rates have emerged as the key indicators of the monetary policy stance all over the world. It is also recognized that stability in financial markets is critical for efficient price discovery and meaningful signaling. Since the interest rate and exchange rate are key prices reflecting the cost of money, it is particularly important for efficient functioning of the economy that they be market determined and easily observed.

Central banks follow a variety of operating frameworks and procedures for signaling and implementing the monetary policy stance on a day-to-day

Bibliography: Prepared By : Manohar Jobanputra 2k72a21, PGDM (2007 - 09)