Financial Markets and Risk Essay Example | Topics and Well Written Essays - 1000 words

Financial Markets and Risk - Essay good exampleThe long term savings and investment products offered by banks and NBFIs are mostly life assurance, pensions and some other investment products such as fixed deposits with a long term maturity. Fixed deposits are snip deposits which give a higher arouse dictate than the normal demand deposits. Pension products are aimed at meeting the retirement needs of investors wherein a lump sum amount is given to the investor which is accrued everywhere the years. Investing in bonds (government and corporate) is another option where there is more than safety even though the returns whitethorn be comparatively less. Some banks and many NBFIs provide platform to invest in coarse funds too. II. Implications for individual savers and investors of a significant amplification in the general interest rates. The most visible(a) effect delinquent to the increase in interest rates is on the loans sucked and deposits made by individuals. An increa se in interest rate means increase in the repo rates of banks. This volition result in an increase in the mortgage loans interest as well as other loans and debts alike mention card debt. The increase in interest rate on loans allow force the individuals who already borrowed the loans to stand more on the interest and this will lead to fewer savings. Those who had plans to borrow loan will set back the same in order to be relieved of the extra burden of higher interest repayment. other aspect is with the timing preference of making deposit. Since the interest rate is high, the return on investment from banks in the form of deposits will also be high which will prompt the individuals to make more investments knocked out(p) of their savings. Exchange rate changes can also be an effect of interest rate change. When the interest rate increases, there will be more inflow of foreign money in the form of FIIs. This will lead to an increase in the value of the domestic currency. The implications are that, the individuals who invested in foreign currency will see their value of investment come down in terms of domestic currency due to the decrease in value of the foreign currency, other factors remaining the same. Also this will make trade goods relatively cheaper to the domestic buyers which in turn force the domestic puzzlers to reduce their products price which means more savings for the individual. Rise in interest rates will also affect stock and securities like bonds. When interest rate rises, the price of existing bond falls. This is because investors can get higher rates on newly issued bonds. A rising interest rate may affect the stock market also because 1) investors will turn to buy bonds as they give better yield, 2) investors need to pay more to borrow money and spend them, which will lead to a slump in the growth of many companies which produce consumer goods. III. Risks to commercial banks of a significant rise in general interest rates. All ba nks face interest rate risks. Changes in interest rate can reduce a banks payment and lower its net worth. Interest rate risk is defined as the volatility in pay or the value of a financial institution owing to unexpected changes in interest rates. The oral sex source of interest rate risk is the mismatched re-pricing of a financial intermediarys assets and liabilities.