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UNIVERSITY OF ESSEX BE334

FINANCIAL MARKETS AND MONETARY POLICY

· 案例展示

Coursework 2018/19

Submission deadline: 23-Nov-2018, 09:00:00

By using relevant data, theoretical concepts and models, answer the following three questions:

1) What is the term structure of interest rates? Define it and explain main theories behind it.

(30% of the total mark)

2) The UK Debt Management Office (http://www.dmo.gov.uk) provides information on all issued gilts.

The close prices have been published on Tradeweb (https://reports.tradeweb.com/account/login/)

since July 2017.

a. Using the above resources, characterise the following financial instruments: “1%

TREASURY GILT 2024” (ISIN Code: GB00BFWFPL34) and “1⅝% TREASURY GILT

2028” (ISIN Code: GB00BFX0ZL78).

b. Calculate the interest rate on these financial instruments on October 19, 2018. Explain your

calculation in detail. If you compare the two interest rates calculated, are they in line with

the theories of the term structure?

(30% of the total mark)

2) The UK Debt Management Office (http://www.dmo.gov.uk) provides information on all issued gilts.

The close prices have been published on Tradeweb (https://reports.tradeweb.com/account/login/)

since July 2017.

a. Using the above resources, characterise the following financial instruments: “1%

TREASURY GILT 2024” (ISIN Code: GB00BFWFPL34) and “1⅝% TREASURY GILT

2028” (ISIN Code: GB00BFX0ZL78).

b. Calculate the interest rate on these financial instruments on October 19, 2018. Explain your

calculation in detail. If you compare the two interest rates calculated, are they in line with

the theories of the term structure?

(30% of the total mark)

3) The Bank of England offers access to the most recent yield curves as well as to the archived data on

interest rates in the past: http://www.bankofengland.co.uk/statistics/pages/yieldcurve/default.aspx.

a. Explain how the Bank of England (BoE) computes yields for government liabilities.

b. Using these data, plot nominal yield curves for UK government liabilities for the end of each

month in the last five years. To do so, use the “surface” chart type in Excel, or a similar 3D

representation.

c. The Bank England increased interest rates two times. Had these events any impact on the

yield curve? Explain.

(40% of the total mark)

Total word count: not more than 1500.

Recommended reading

You may find the following publications useful for your understanding of the developments in the theories of

the term structure of interest rates.

Greenwood, R., D. Vayanos (2010) "Price Pressure in the Government Bond Market," The American

Economic Review, 100, Papers and Proceedings, pp. 585-590

Gürkaynak, R., J. Wright (2012) "Macroeconomics and the Term Structure," Journal of Economic

Literature, 50, pp. 331-367

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