Well then, we now reach a point where we assess the the pros and cons of a particular financial market instrument. Not just that you can even compare LIBOR to other internationally accepted bank rates for a further comprehensive analysis of the money market situation.
It is essentially an instrument in the debt market place for a better idea of the variable rate of interest. This rate is issued by Government and financial institutions with maturities varying between years. A major part of the investment grade bonds in US comprises of these Floating rate notes.
So how do these variable interest rate instruments fare against fixed-rate debt instruments? The FRNs safeguard the investors against sudden spike in interest rates compared to a fixed rate note which will see a drop in bond rates if the rate of interest goes up.
However, understandably, these FRNs would have a much lower yield in comparison with a more uncertain coupon payment cycle. It is seen that the rate for FRNs can frequently change and have the option to be issued with or without call option. The entire forex market will come to a standstill if this rate falls apart.
Not just as a key benchmark, it also serves as a tool for the future outlook for global interest rates and gives us an idea of the state of the international economy. Using these rate investors can play on both the future prospects and the current performance of the major currency pairs of the world. They can also be used as fundamental instruments to invest in predictive long-term trends.
I like the way you publish articles. One is for currency discussion with tip of the day which is very helpful and I read it very day and second is just for general knowledge it is just to learn things one by one.
Fortunately I have too many articles already written and I can publish one every day. Today my broker has raised the margin requirement for all CHF cross currency making it 10x ten times of the original requirement. Will this result is very little trading in CHF cross currency pairs?
The accounts that are gone, are gone and this margin modification is useless now. I think we can compare the Libor to an Earthquake, we know it intensity after it happens. This eBook shows you the shortest way to acheive Financial Freedom: Just before you go, did you check This System? Make sure to do it now, otherwise you will regret. The Swiss Franc Tsunami: Article by LuckScout Team.
November 28, at November 29, at 4: Fundamental analysis of central banks is often a process of poring through statements and speeches by central bankers along with attempting to think like them to predict their next move. Trading economic releases can be a very tenuous and unpredictable challenge. Many of the greatest minds at the major investment banks around the world have a difficult time predicting exactly what an economic release will ultimately end up being.
They have models that take many different aspects into account, but can still be embarrassingly wrong in their predictions; hence the reason that markets move so violently after important economic releases. If the consensus fails to predict the final result, the market then usually moves in the direction of the actual result — meaning that if it was better than consensus, a positive reaction unfolds and vice versa for a less-than-consensus result.
The trick to trading the fundamental aspect of economic releases is to determine when you want to make your commitment. Do you trade before or after the figure is released? Both have their merits and their detractions. If you trade well before the release, you can try to take advantage of the flow toward the consensus expectation, but other fundamental events around the world can impact the market more than the consensus read.
Trading moments before the economic release means that you have an opinion on whether the actual release will be better or worse than the consensus, but you could be dreadfully wrong and risk large losses on essentially a coin flip. Trading moments after the economic release means that you will be trying to establish a position in a low-volume market which presents the challenge of getting your desired price. These tensions or conflicts can have an adverse impact on tradable goods by changing the supply or even the demand for certain products.
For instance, increased conflict in the Middle East can put a strain on the supply of oil which then makes the price increase. Being able to properly predict how these events will conclude may be a way to get ahead of the market with your fundamental perspective. For instance, at the end of the calendar year many investors will sell equities that have declined throughout the year in order to claim capital losses on their taxes.