scholarly journals THE MECHANISM OF BANK INTEREST RATE FORMATION AT THE MACROECONOMIC LEVEL AND ITS ECONOMIC AND MATHEMATICAL MODEL

2019 ◽  
Vol 2019 (2) ◽  
pp. 73-89
Author(s):  
Dmitry OLIEINIK ◽  
Keyword(s):  
Interest Rate ◽  
Banking System ◽  
Profit Maximization ◽  
Point Of View ◽  
Factors Affecting ◽  
Economic Agents ◽  
Bank Rate ◽  
Financial Condition ◽  
Real Market ◽  
The Interest Rate

It is shown that, as of today, the issue “interest rate and factors affecting it” is described in sufficient detail in terms of identifying and classifying these factors. However, both classical and modern theories consider the interest rate from the point of view of relations between economic agents: the owner of the funds (creditor) and the entity experiencing the need for additional funds (borrower) without singling out the banks. The bank interest is considered exclusively at the microeconomic level as the fundamental rate, adjusted depending on the conditions for granting a loan or attracting a deposit and the financial condition of a bank. However, the issue of the fundamental rate – the rate formed at the macroeconomic level – remains unresolved. Taking decision to set the interest rate, banks pursue two goals: profit maximization and risk management. The author substantiates the idea that the risk factors and effective use of funds raised are crucial for the formation of the fundamental rate. It is shown that the basic factor of the bank interest formation, which combines the elements of risk and profitability, is bank liquidity. At the same time, under the influence of the laws of the behavioral economy, the linear influence of liquidity is transformed into an ellipsoidal one. It is analyzed that subjective factors (the Central Bank rate and its profitability) are the efficiency factors, and their effect on the interest rate is manifested in the context of comparison with the influence of the base factor only. It is substantiated that, in a crisis, the main motivational element when making decision on the interest rate is managing the risk of customer funds outflow. The author presents the interest rate model and modeling results for the banking system of Ukraine, which are quite close to the real market indicators.

scholarly journals Risk of Interest Rates at the Level of Commercial Banks in Romania

2017 ◽  
Vol 22 (4) ◽  
pp. 281-288
Author(s):  
Ioana Raluca Sbârcea
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Commercial Banks ◽  
Asset Price ◽  
Banking System ◽  
Interest Rate Risk ◽  
Point Of View ◽  
Risk Indicators ◽  
Rate Risk ◽  
The Interest Rate

Abstract The banking system in Romania is a banking system under development, subject to fluctuations that exist on the market more than on more developed banking systems, fluctuations that can generate losses for banks if they are not properly managed. The losses that may be generated by these fluctuations, known as market risk, refer to the significant fluctuations in three indicators, namely the interest rate, the exchange rate and the asset price. In this article, I will analyse the interest rate risk from a conceptual point of view and the indicators that mitigate this risk. The analysis also contains a study of this risk among commercial banks in the system to highlight the level of risk and possible effects of its manifestation. I calculated and analysed the interest rate risk indicators, individually for the first three banks in the system, but also to comparatively, in order to highlight the existing differences.

scholarly journals Analysis of Interest Rate Impact on the Profitability Level of the Banking System in Albania during the Period 2005 -2014

2015 ◽  
Vol 3 (1) ◽  
pp. 203
Author(s):  
Sokol Ndoka ◽  
Anilda Bozdo
Keyword(s):  
Interest Rate ◽  
Financial Crisis ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Banking System ◽  
The Other ◽  
Factors Affecting ◽  
The Interest Rate ◽  
The Global Financial Crisis ◽  
The Impact

This study is an analysis of the movement and impact of interest rates on the profitability level of the banking system in Albania. This analysis covers a 10-year timeframe (is organized in three time segments - before, during and after the financial crisis), taking into consideration the critical point of the years 2008-2009 considered as the “peak” of the global financial crisis. Such separation is made in order to see the possible changes of each period of time and to identify the impact differences of this factor in each period of study. This study is based on the hypothesis that the decrease of the interest rate has positively affected the income increase from interest as a result of the impact of two factors, negative levels of Gaps and an increased level of spread toward the average assets. As a matter of fact, it has neutralized on a certain level the other risks such as that of the loan which has dominated over the other risks. This paper is based on an empirical study with secondary quantitative and qualitative data. This study provides a considerable contribution in the framework of identification of factors affecting the profitability of the banking system in Albania, namely in the context of interest rate; In addition, this study aims at highlighting the importance of open Gaps minimization for the efficient profitability increase of the financial system.

DETERMINAN INFLASI DI INDONESIA PERIODE 1980-2015

2016 ◽  
Vol 21 (1) ◽  
pp. 1-7
Author(s):  
Risna Risna
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Money Supply ◽  
Government Spending ◽  
Positive Impact ◽  
Secondary Data ◽  
Quantitative Approach ◽  
State Spending ◽  
Factors Affecting ◽  
The Interest Rate

This study aims to determine the effect of government spending, the money supply, the interest rate of Bank Indonesia against inflation.This study uses secondary data. Secondary data were obtained directly from the Central Bureau of Statistics and Bank Indonesia. It can be said that there are factors affecting inflationas government spending, money supply, and interest rates BI. The reseach uses a quantitative approach to methods of e-views in the data. The results of analysis of three variables show that state spending significantand positive impact on inflationin Indonesia, the money supply significantand negative to inflationin Indonesia, BI rate a significantand positive impact on inflation in Indonesia

scholarly journals Does E-Money Affect Inflation In Indonesia

2021 ◽  
Vol 19 (1) ◽  
pp. 1
Author(s):  
Andres Dharma Nurhalim
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rates ◽  
Money Supply ◽  
Quantitative Approach ◽  
Electronic Money ◽  
Factors Affecting ◽  
Main Factors ◽  
The Interest Rate ◽  
Main Components

The purpose of this study aims to explain the effect of electronic money on inflation and how much influence it has on the Indonesian economy. In this study the authors used a quantitative approach. The variables used are inflation, electronic money, exchange rate, money supply (M1), and BI interest rate. Result: The previous money supply (LQMprev) and the interest rate (BI Rate) were the main factors affecting inflation. In this result, e-money and exchange rates are not the main components driving inflation. Based on SPPS processing using regression, e-money and exchange rates do not have a significant effect on inflation in Indonesia, but LQMprev has a significant effect on inflation. From the results of this study it is still too early to analyze the effect of e-money on inflation because it is still relatively new in Indonesia.

scholarly journals Does the Interest Rate Form Business Cycle?

2019 ◽  
Vol 4 (1) ◽  
pp. 29-34
Author(s):  
Bijan Bidabad ◽  
Abul Hassan
Keyword(s):  
Interest Rate ◽  
Business Cycle ◽  
Interest Rates ◽  
Banking System ◽  
Real Economy ◽  
Short Term ◽  
The Usa ◽  
Rate Form ◽  
The Interest Rate

Dynamic structural behavior of depositor, bank and borrower and the role of banks in forming business cycle are investigated. We test the hypothesis that does banks behavior make oscillations in the economy through the interest rate. By dichotomizing banking activities into two markets of deposit and loan, we show that these two markets have non-synchronized structures, and this is why the money sector fluctuation starts. As a result, the fluctuation is transmitted to the real economy through saving and investment functions. Empirical results assert that in the USA, the banking system creates fluctuations in the money sector and real economy as well through short-term interest rates

Interest-Free Micro-Finance Without Any Religious Connotation

2020 ◽  
pp. 196-215
Author(s):  
Badr El Din A. Ibrahim
Keyword(s):  
Interest Rate ◽  
Limited Liability ◽  
Point Of View ◽  
Major Result ◽  
General Belief ◽  
Muslim Countries ◽  
Two Systems ◽  
The Interest Rate ◽  
Limited Duration

The purpose of this chapter is twofold: to investigate the relevance and the significance of interest-free formulae for conventional microfinance in non-Muslim countries, (with no religious connotation), and to lay out the foundation of a global interest-free microfinance model. The major result is that the interest-free Musharakah is just a simplified limited liability with limited duration conventional partnership. Sales-based Murabahah can also be a rewardable complement to interest. Islamic Ijarah is a leasing formulae also practiced in Europe and Africa. Salam is not far from conventional forward contact. Other finance formulae can also be used by conventional lenders to ‘complement' the interest rate. These results, contrary to the general belief, concluded that investment formulae of the two systems are not far from each other. Moreover, interest-free formulae are practiced in Africa without being related to Islam. This indicate that if we look at the interest-free formulae from the point of view of their usefulness, and not from a religious point of view, these will have universal applications without being identified as Islamic. The chapter lays out the foundation of a global interest-free microfinance model capable of serving Muslims and non-Muslims alike.

scholarly journals A FINANCIAL ANALYSIS OF RESWITCHING

2021 ◽  
pp. 220-244
Author(s):  
Rafael García Iborra
Keyword(s):  
Interest Rate ◽  
Business Cycle ◽  
Interest Rates ◽  
Inverse Relationship ◽  
Financial Analysis ◽  
Banking System ◽  
Weighted Average ◽  
Business Cycle Theory ◽  
Natural Level ◽  
The Interest Rate

The classical Austrian Business Cycle Theory (ABCT) is based on an inverse relationship between the so-called Average Period of Production (APP) or ‘roundaboutness’ and the interest rate. According to Böhm-Bawerk (1884 [1891]), the APP is the weighted average time that a unit of labor is locked up in the production process1; moreover, there is a positive relationship between savings (the ‘subsistence fund’) and the APP: the higher the latter the higher the former, which implies an inverse relationship between interest rates and the APP. Thus, a lower interest rate will lead to a higher APP ceteris paribus. Hayek (2008) based his Hayekian triangles on Böhm-Bawerk’s work: a lower (higher) interest rate leads to a more (less) rounda- bout structure of production, increasing (decreasing) the APP. Including Mises’s (1921) business cycle theory into the analysis, whenever the interest rate is pushed lower than its ‘natural level’, either by the central bank or the banking system, there is an unsus- tainable extension of the APP that will generate an economic boom; the crisis will irremediably follow, as the APP will pull back towards its natural level. From this brief characterization of the ABCT, it is easy to notice the key role of the inverse relationship between interest rates and roundaboutness; without it, there is no connection from changes in interest rates and roundaboutness, and the ABCT falls apart. The reswitching of techniques is precisely a counterexample to that relationship, as it claims there are situations in which lower interest rates do not lead to more roundabout productive struc- tures. The organization of this paper is as follows: the next section describes the reswitching of techniques as stated by Samuelson (1966) and the implication for the classical ABCT, based on a phys- ical measure of roundaboutness; section 3 analyzes the alternative of applying corporate finance to the ABCT following Cachanosky and Lewin (2014). Section 4 is a financial analysis of Samuelson’s example, argues why modified duration should replace Böhm- Bawerk’s APP as a measure of roundaboutness, and shows why it does not represent a paradox to the ABCT when the financial approach is used. Sections 5 and 6 address the question from two additional perspectives: a neoclassical with fully flexible prices but fixed techniques and the Austrian related dynamic efficiency.

Depleting net worth of Russian banks: Changes in banks’ risk-taking and the interest rate policy of the Bank of Russia

2019 ◽  
pp. 30-55
Author(s):  
Mikhail E. Mamonov
Keyword(s):  
Interest Rate ◽  
Risk Taking ◽  
Banking Sector ◽  
Banking System ◽  
Bank Failures ◽  
Total Size ◽  
Interest Rate Policy ◽  
Net Worth ◽  
Rate Policy ◽  
The Interest Rate

Despite achieving success in the tight prudential regulation of the banking sector, the Bank of Russia (CB RF) continues to reveal new cases of negative net worth in banks. This paper investigates the influence of banks’ risk-taking and the interest rate policy of the CB RF on the depletion of net worth in Russian credit institutions during 2007—2017. The quartile regression approach is employed to examine the differences in net worth depletion of already failed banks; additionally, the Heckman selection approach is applied to analyze potential negative net worth that has not been revealed by the CB RF yet. The estimation results suggest that banks’ risk-taking matters: its increases are positively associated with the rises of the probability of bank failures and the size of negative net worth, conditional on failure. Ignoring of banks’ risktaking leads to a substantial upward bias in the estimates of the total size of negative net worth in the banking system — from 3.6 to 5.3 trillion rubles, or by 2% of the system’s total assets. Further, the interest rate policy of the CB RF has a risk-shifting effect: an increase of the key rate together with a rise of its volatility are associated with a further depletion of banks’ net worth. Finally, the paper shows that a joint increase in banks’ risk-taking and the key rate has a further negative effect on banks’ net worth.

scholarly journals Stochastic model of microcredit interest rate in Morocco

2016 ◽  
Vol 6 (4) ◽  
pp. 268-273 ◽  
Author(s):  
Ghita Bennouna ◽  
Mohamed Tkiouat
Keyword(s):  
Interest Rate ◽  
Stochastic Model ◽  
Interest Rates ◽  
Low Income ◽  
Financial Services ◽  
Banking System ◽  
Well Being ◽  
Microfinance Institutions ◽  
Social Mission ◽  
The Interest Rate

Access to microcredit can have a beneficial effect on the well-being of low-income households excluded from the traditional banking system. It allows this population to receive affordable financial services to help them to meet their needs and to improve their living conditions. However to provide access to credit, microfinance institutions should ensure not only their social mission but also commercial and financial mission to enable the institution to perpetuate and become self-sufficient. To this end, MFIs (microfinance institutions) must apply an interest rate that covers their costs and risk, while generating profits, Also microentrepreneurs need, to this end, to ensure the profitability of their activities. This paper presents the microfinance sector in Morocco. It focuses then on the interest rate applied by the Moroccan microfinance institutions; it provides also a comparative study between Morocco and other comparable countries in terms of interest rates charged to borrowers. Finally, this article presents a stochastic model of the interest rate in microcredit built in random loan repayment periods and on a real example of the program of loans of microfinance institution in Morocco.

scholarly journals Identifying the Factors Affecting Financial Condition of Malaysia

2021 ◽  
Vol 22 (1) ◽  
pp. 403-421
Author(s):  
Yee-Ling Pang ◽  
Hock-Ann Lee
Keyword(s):  
Foreign Exchange Market ◽  
Statistical Significance ◽  
Balance Sheet ◽  
Banking System ◽  
Principal Component ◽  
Well Being ◽  
Factors Affecting ◽  
Financial Condition ◽  
Long Run ◽  
The Us

This research focuses on the domestic and external determinants of Malaysia’s financial condition, ranging from January 2003 and March 2019. To represent the domestic determinants, a total amount of twelve financial indicators are adopted to compute three indices using the Principal Component Approach (PCA). Three of the indices embody three respective financial segments, particularly the banking system, the foreign exchange market, and the capital market within the Malaysian financial system. These three segments offer a glimpse of the Malaysian financial condition. For the external determinant, the US total assets of all Federal Reserve Banks are adopted as the proxy for the size of the US balance sheet. This research intends to evaluate the validity of the long-run association and its corresponding level of effect between the computed indices and the US balance sheet size via the conduct of the ARDL bounds test approach. The research findings have verified the validity of the long-run association between the Malaysian financial condition and the US balance sheet size. There is a substantial role played by the US balance sheet size in affecting the well-being of Malaysian financial condition, given the statistical significance is shown in the association between the US balance sheet size and the financial-segment-based indices, whereby its strongest influence is found on the banking system condition.

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