Risk management Essay Example | Topics and Well Written Essays - 2000 words

Risk management - Essay Example This report will focus on the different types of yield curves and how changes in the slope of yield curve impacts the future prospects of the economy. Further, it will also take into consideration the effectiveness of monetary policy responses in the time of financial crisis and how those responses have affected the shape of the yield curve. Table of Contents Executive Summary 2 Table of Contents 3 Introduction 4 Task 1: To Examine the Types of Yield Curve 4 Task 2: Impact of Yield Curve on Future Economic Prospect 6 Task 3: Effectiveness of Monetary Policy 9 Task 4: Implication for Investor and Policy makers 10 Conclusion 10 Appendices 11 Reference 13 Introduction A yield curve is referred to the graphical representation of the relationship among the yield on a group of securities for different maturities. It explains how interest rates differ with the term to maturity (Burton, Burton and Nesiba, 2010, p.115). The yield curve has too much information about the economic conditions an d the future interest rates. In U.S. the benchmark interest rate last recorded was at 0.25%. Federal Reserve reports the interest rates in U.S. Historically, from 1971 to 2013, the interest rate of U.S. averaged 6.17 % and recorded a high of 20% in March 1980 and a low of 0.25% in December 2008. Interest rate changes depend not only on what Federal Reserve does today or next year but also on perception of the people about the goals and reliability of the monetary authority. In U.S. the monetary policy is determined by the Federal Reserve. The goals and the associated expectations depends on the arrangement of the monetary policy (Haubrich, 2004, p.1). The yield curve is used by the investors to understand the future prospects of economic activities. Task 1: To Examine the Types of Yield Curve The structure of interest rates can be characterized by a graph which shows the relationship between the yields to maturity as a function of term to maturity. Such a graph is termed as yield cu rve. There are four different types of yield curve for U.S. Treasury securities such as normal yield curve or upward sloping yield curve, inverted yield curve or downward sloping yield curve, flat yield curve and humped yield curve. There are two theories which are used to explain the shapes of yield curves. The pure expectation theory reflects the current expectation of the future rates of the market and the market segmentation theory signifies that the shape of yield curve is established by demand for and supply of securities within each maturity sector. In normal yield curve long term rates are high in position than short term rates. The securities with longest maturity provide the highest returns and the shortest maturity securities provide lowest returns. Generally it is upward sloping. The normal yield curve signifies the normal conditions of the capital markets. It presents the borrowers with the risk-return trade-off (Droms and Wright, 2010, pp.144-145). It entails that the investors of the U.S. expect growth in the economy in the future and for this growth to lead to higher interest rates and higher inflation. They don’t purchase longer term securities without receiving a higher interest r

About silk road Essay Example | Topics and Well Written Essays - 1250 words

About silk road - Essay Example The whole process happened in a period. Traders who operate on the Silk Roads, however, they take great interest mostly in the safety of the products that they are particularly interested and in products that they trade in. This assures them of the protection of the trade route i.e. the Silk route or the Silk Road (Elisseeff 222). This paper will give detailed information on the silk roads including all the aspects. This means that the importance of silk roads will be covered in detail. Additionally, the history and the origin of these roads will be covered. On the other hand the disadvantages or the pros of the roads will also be given. Many researchers have conducted researches on these types of roads thus giving relevant information about Silk roads. The Silk Roads as discussed above are said to have originated during the 1st century. It came to this because of the efforts of the country China. China at first consolidated a road to the Western world and India. The two routes were obtained through direct settlement in the area of the Tarim Basim and diplomatic relationship countries of the Parthians, Dayuan and Bactrians further west. People used these routes to extract opportunities to exchange culture and other behaviors (Elisseeff 243). After the Roman conquest that happened in Egypt in 30 BC, the regular communications and the trade between several countries blossomed on an unprecedented scale. The countries that were on this blossom were China, India, Africa, Europe, and Southeast Asia. It was found that the Roman Empire inherited the eastern trade routes from the earlier Hellenistic powers and the Arabs. After the Roman Empire took over the Silk Roads, the citizens of the Roman Empire would have the opportunity of receiving luxuries and greater prosperity for the empire as a whole. With the presence of the Silk Roads, the Greco-Roman trade kept on rising to new levels. This trade was started by Eudoxus of Cyzicus in 130 BC. The trade rose to about