scholarly journals Preferred and Non-Preferred Creditors

2021 ◽  
Author(s):  
Tito Cordella ◽  
Andrew Powell

International financial institutions (IFIs) generally enjoy preferred creditors treatment (PCT). Although PCT rarely appears in legal contracts, when sovereigns restructure bilateral or commercial debts, they normally pay IFIs in full. This paper presents a model where a creditor, such as an IFI, that can commit to lend limited amounts at the risk-free rate and can refrain from lending into arrears is always repaid and adds value. The analysis suggests that IFIs and market lenders can both enhance welfare, even if banning commercial borrowing can sometimes be optimal. To maintain their status, preferred lenders should offer low cost financing in volumes that are consistent with countries' incentives to repay even in bad states. This suggests such lenders should not differentiate lending interest rates according to risk and should not participate in the restructuring of commercial debt.

2017 ◽  
Vol 12 (01) ◽  
pp. 1750002 ◽  
Author(s):  
JUKKA ILOMÄKI

I clarify and combine the results of Ilomäki (2016a) and Ilomäki (2016b) and find several interesting conclusions. First, the effect of the animal spirits component to the expected returns of investors depends on the risk-free rate. Second, there must be an upper limit for the risk-free rate, where the component that reduces the expected returns of informed investors in Ilomäki (2016a) disappears. Third, the empirical results of Ilomäki (2016b) indicates that the break-even level is as low as 3%.


2013 ◽  
Vol 48 (2) ◽  
pp. 343-375 ◽  
Author(s):  
Pavel Savor ◽  
Mungo Wilson

AbstractStock market average returns and Sharpe ratios are significantly higher on days when important macroeconomic news about inflation, unemployment, or interest rates is scheduled for announcement. The average announcement-day excess return from 1958 to 2009 is 11.4 basis points (bp) versus 1.1 bp for all the other days, suggesting that over 60% of the cumulative annual equity risk premium is earned on announcement days. The Sharpe ratio is 10 times higher. In contrast, the risk-free rate is detectably lower on announcement days, consistent with a precautionary saving motive. Our results demonstrate a trade-off between macroeconomic risk and asset returns, and provide an estimate of the premium investors demand to bear this risk.


2001 ◽  
Vol 91 (1) ◽  
pp. 149-166 ◽  
Author(s):  
Michele Boldrin ◽  
Lawrence J Christiano ◽  
Jonas D. M Fisher

Two modifications are introduced into the standard real-business-cycle model: habit preferences and a two-sector technology with limited intersectoral factor mobility. The model is consistent with the observed mean risk-free rate, equity premium, and Sharpe ratio on equity. In addition, its business-cycle implications represent a substantial improvement over the standard model. It accounts for persistence in output, comovement of employment across different sectors over the business cycle, the evidence of “excess sensitivity” of consumption growth to output growth, and the “inverted leading-indicator property of interest rates,” that interest rates are negatively correlated with future output. (JEL D10, E10, E20, G12)


1994 ◽  
Vol 24 (3) ◽  
pp. 567-578 ◽  
Author(s):  
Horst Brand

The debt crisis into which heavy borrowing, steeply rising interest rates, and a worldwide recession had plunged a number of developing countries in the late 1970s and 1980s was alleviated largely by policies and conditionalities imposed by the International Monetary Fund and the World Bank. These policies and conditions were meant to strengthen the export and financial markets of those countries, stabilize their currencies, and reduce the reach of their governments in their economies. However, they contributed to deepening poverty and structural crises, as the reports and data published by the international financial institutions themselves attest.


2020 ◽  
Vol 4 (349) ◽  
pp. 7-21
Author(s):  
Przemysław Pomykalski ◽  
Piotr Filipiak

We review the theory and evidence on IPO activity and underpricing focusing on the Warsaw Stock Exchange. Although the topic has been under investigation in the past, we believe that the recent decade of low interest rates deserves inquiry. We research the extent of underpricing during this period and further conclude that three factors had a statistically significant influence on initial public offering underpricing during this period: the year of IPO, risk-free rate and WIG close value.


Author(s):  
Xiaodan Gao ◽  
Toni M Whited ◽  
Na Zhang

Abstract We document a hump-shaped relation between corporate cash and both real and nominal interest rates in both aggregate and firm-level data. We rationalize this result in a model where firms finance investment with cash and risky debt. The risky rate rises endogenously with the risk-free rate, spurring precautionary cash demand. Simultaneously, foregone interest lowers cash demand. The first mechanism dominates at low interest rates, and the second at high interest rates. The model matches several data moments and reproduces a nonmonotonic cash–interest relation. This nonmonotonicity implies that interest rates are unlikely to be behind the recent rise in corporate cash.


2021 ◽  
Vol 24 (1) ◽  
pp. 113-138
Author(s):  
Shizhen Wang ◽  
◽  
David Hartzell ◽  

We apply the dynamic Gordon growth model to the Hong Kong real estate market to analyze quarterly data on four kinds of real estate—housing, office, retail, and factory properties—from 1999 to 2020. We find that factories have the highest total returns among the four types of real estate, and also a larger Sharpe ratio. The total returns of these four kinds of real estate are highly correlated. The results of an autoregressive distributed lag model show that the gross domestic product growth rate is the key determinant of real estate returns, while changes in foreign direct investment also influence housing and retail returns. The expected value of the risk-free rate is the key factor that determines the rent-price ratio. The decline in the risk-free rate in Hong Kong is the main reason that the real estate price-rent ratio has increased from 20 to 40 in the last twenty years. Our research represents an early contribution that compares the performance of housing and commercial real estate at the city level, with both types of real estate having similar determinants. Finally, we find that the fall in risk-free interest rates worsens housing affordability in Hong Kong.


2019 ◽  
Vol 6 (6) ◽  
pp. 80
Author(s):  
Saied Simozar

The present value of a forward contract for any asset that does not pay a dividend is calculated by discounting its forward price by the risk-free rate. We show that the discount function for assets that have a non-zero correlation with interest rates, has to be adjusted to account for the correlation between the asset and interest rates. Put-Call parity is also violated and needs to be adjusted as well for such assets. It is shown that the risk-free rate is asset dependent. The adjustment to the price is small for short dated forwards, but increases quadratically with time to maturity.


Author(s):  
Tegar Rismanuar Nuryitmawan

This study aims to answer whether or notfinancial distribution can play a role in development and poverty alleviation in Indonesia. Households who receive credit are treated as the analysis level and research object. Credit is an instrument to help households escaping from poverty. Some opinions believe that by being given credit, households will be able to boost their economic capacity both in terms of purchasing power or business development capacity. However, to prove this opinion as well as to answer the question, using panel data from the Indonesian Family Live Survey (IFLS) in 2007 and 2014 will attempt to estimate the effect of the probability of households receiving credit on their poverty status. The probability of a credit recipient householdwill be calculated using Propensity Score Matching so that a similarity score of household characteristics will be obtained between those who get credit and those who do not. Using Double Differences, this study will address the description of changes in household poverty status after receiving credit from financial institutions. The PSM calculations results show that there are four variables as credit recipient household’s characteristics, namely collateral ownership, the status of property ownership, history of natural disasters, and gender. Meanwhile, the estimation results on poverty status indicate that credit recipient households have a greater probability of escaping poverty than those who do not receive credit. Therefore, the anti-poverty policy through the transmission of financial institutions is relevant to be prepared. The anti-poverty policy is related to low credit interest rates through government subsidies, public fund placement with low cost of fund, increasing financial literacyand knowledge of the society, and adjusting credit approval based on regional economic conditions.


Sign in / Sign up

Export Citation Format

Share Document