RSM230H1 Study Guide - Midterm Guide: Seigniorage, Yield Curve, Accrued Interest
6 Dec 2016
School
Department
Course
Professor
Document Summary
Money market instruments: discount notes (t-bills, less than one year products, bonds (pricing, bond quote, accrued interest, ytm, real return bonds) Asset backed securities (abs -> part of securitizations) Some tricky terms/relationships: ytm vs coupon rate. P*c / 1+r: bank rate vs overnight rate vs prime rate (set by commercial banks) 50bps: monetary policy vs fiscal policy. Monetary policy is set by bank of canada. Fiscal policy set by the government: corporate bond vs government bond. During recession, yield curve will go up for corporate bonds. Yield spread will go up: breakeven interest rate (beir) Real return bonds, nominal bonds (most bonds), inflation rate. If inflation rate is 2% and real return bond is 1% over inflation rate. If inflation is 2. 5%, real return will be 3. 5% Breakeven = real return bond nominal bond. Risk defaults (prevent banks from dying) of clients. Off balance sheet risks (not shown on balance sheets: corps park their bad debts on children company.
