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The Money as the Appropriate Measure of the Policy - Literature review Example

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This review discusses the bond market risk and the occurrences when the agents allocate the funds towards the bond market without any evaluation and analysis of the purchasing and selling price of the bond afterward. The review analyses market prices incorporate additional information. …
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The Money as the Appropriate Measure of the Policy
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Download file to see previous pages However it is incorrect to regard the money as the appropriate measure of the policy towards the increase in the interest rates, the interest rates are based on the supply of bonds, and rate of interest is regarded as the return on bonds, through bonds the evaluation of the liquidity effect can be exercised. The measurement of the money can be exercised through the non-borrowed reserves; the purpose of injecting the money cannot be achieved through the withdrawal of say, Treasury bills. The injection of money can also be exercised through the purchase of long-term bonds, and this is expected to develop an impact on the short-term rates.
The bond market risk is associated with the occurrences when the agents allocate the funds towards the bond market without any evaluation and analysis of the purchasing and selling price of the band afterward. Such concerns are imminent because asset markets are considered to be incomplete and segmented. The risk within the bond market based on the supply of the bonds is experienced when the agents and dealers are willing to invest their resources in the trade market. The buyers are the expected beneficiaries when the bond-supply shock is positive, the positive effect is based on the lower prices of the bond as compared to the expected prices, and when the expected rate of return has been crossed. Therefore within the bond market business, the dealers are expected to make a good fortune, and 'any real consequences are distributional because the shock has favored some agents at the expense of others'. The expansion and growth of the bond market are expected to determine the time period associated with the downgrade within the bond market the time is considered to be the major dimension, and the expansion of the bond market is based on the 'relationship between the indicators and the downgrade'.
In the case of banks, the relation between the market indicators which include rating changes, abnormal stock returns, and the proportion of equity owned by institutional investors and bank insiders and supervisory information have failed to explain the supervisory assessments and bond ratings, and for this purpose, the equity indicators have been ignored. It was reported that the 'bond spreads with particularly poor supervisory assessments reducing spreads and vice versa', therefore the market is based on the market discipline i.e. supervisory assessments. It was investigated that market prices incorporate additional information as compared with the accounting variables, and therefore influence the ratings of the respective bonds, however there is no variance in the future prospects and worth of the bond, it is the debt market indicators which have predictive power to influence the performance and operations of the bond market.
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