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Article
Publication date: 1 January 1989

Stewart D. Hodges

Major financial lease contracts are commonly written on a variable interest rate basis. The conditions of this sort of lease include an interest rate variation clause which…

Abstract

Major financial lease contracts are commonly written on a variable interest rate basis. The conditions of this sort of lease include an interest rate variation clause which provides for adjustments to be made to the rentals when interest rates change. Such adjustments are usually made periodically by applying the change in the interest rate (from the rate at the beginning of the lease) to the amount of the lessor's investment in the lease.

Details

Managerial Finance, vol. 15 no. 1/2
Type: Research Article
ISSN: 0307-4358

Open Access
Article
Publication date: 13 July 2022

Anthony Orji, Davidmac Olisa Ekeocha, Jonathan E. Ogbuabor and Onyinye I. Anthony-Orji

The market-based monetary policy framework has been favoured by Economic Community of West African States (ECOWAS) economies. Hence, this study aims to investigate the effect of…

1262

Abstract

Purpose

The market-based monetary policy framework has been favoured by Economic Community of West African States (ECOWAS) economies. Hence, this study aims to investigate the effect of monetary policy channels on the sectoral value added and sustainable economic growth in ECOWAS. Data from the World Bank and International Monetary Fund over 2013–2019 were sourced for thirteen member countries. ECOWAS is found to have very high inflation level, interest and exchange rates.

Design/methodology/approach

The study adopted the Driscoll–Kraay fixed-effects ordinary least squares regression (OLS) estimator.

Findings

The findings revealed that while the effect of monetary policy channels on the agricultural sector value added is largely heterogenous and significantly in-elastic, the one on the industrial and services sectors are overwhelmingly homogeneous and negative, but insignificant for the services sector. Moreover, the effect of monetary policy channels on sustainable economic growth is also homogeneously asymmetric, with imminent stagflation, while the interactive effects of monetary policy channels are heterogeneous on sustainable economic growth and economic sectors. Therefore, an inflation targeting monetary policy stance is generally recommended with prioritised exchange rate stabilisation amid sufficient fiscal space.

Originality/value

This is amongst the first studies to investigate monetary policy channels, sectoral outputs and sustainable growth in the ECOWAS region with a rigorous analysis and found implications for policy.

Details

EconomiA, vol. 23 no. 1
Type: Research Article
ISSN: 1517-7580

Keywords

Article
Publication date: 1 March 2012

Martin J. Luby

The esoteric area of financial derivatives has become quite salient in light of the financial crisis of the last few years. In the public sector, state and local governments have…

Abstract

The esoteric area of financial derivatives has become quite salient in light of the financial crisis of the last few years. In the public sector, state and local governments have increasingly employed derivatives in their bond financings. This paper analyzes state and local governments’ use of a specific type of municipal derivative instrument (a floating-to-fixed interest rate swap) in a specific type of transaction (bond refinancing). The paper provides a case study of an executed bond refinancing transaction that employed a floating-to-fixed interest rate swap quantifying the substantial long-term costs financial derivatives can impart on state and local governments. The paper concludes with some specific lessons learned about debt-related derivative usage for public financial managers and offers some suggestions for further empirical and theoretical research in this area of public financial management.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 24 no. 1
Type: Research Article
ISSN: 1096-3367

Article
Publication date: 13 March 2017

Samuel Kwabena Obeng and Daniel Sakyi

The purpose of this paper is to examine macroeconomic determinants of interest rate spreads in Ghana for the period 1980-2013.

1387

Abstract

Purpose

The purpose of this paper is to examine macroeconomic determinants of interest rate spreads in Ghana for the period 1980-2013.

Design/methodology/approach

The autoregressive distributed lag bounds test approach to cointegration and the error correction model were used for the estimation.

Findings

The results indicate that exchange rate volatility, fiscal deficit, economic growth, and public sector borrowing from commercial banks, increase interest rate spreads in Ghana in both the long and short run. Institutional quality reduces interest rate spreads in the long run while lending interest rate volatility and monetary policy rate reduce interest rate spreads in the short run.

Research limitations/implications

The depreciation of the Ghana cedi must be controlled since its volatility increases spreads. There is a need for fiscal discipline since fiscal deficits increase interest rate spreads. Government must reduce its domestic borrowing because the associated crowding-out effect increases interest rate spreads. The central bank must improve its monitoring and regulation of the financial sector in order to reduce spreads.

Originality/value

The main novelty of the paper (compared to other studies on Ghana) lies on the one hand; analysing macroeconomic determinants of interest rate spreads and, on the other hand, controlling for the impact of institutional quality on interest rate spreads in Ghana.

Details

African Journal of Economic and Management Studies, vol. 8 no. 1
Type: Research Article
ISSN: 2040-0705

Keywords

Article
Publication date: 10 August 2015

Saeed Al-Muharrami

– The purpose of this study is to try to answer whether the banking system in Oman is fair for both depositors and entrepreneurs.

Abstract

Purpose

The purpose of this study is to try to answer whether the banking system in Oman is fair for both depositors and entrepreneurs.

Design/methodology/approach

The interest margin decomposition is based on the methodology proposed in Randall (1998). The income statement of banks defines profits before taxes (P) as interest income (II), plus non-interest income (NII), minus interest expense (IP), minus operating costs (OC) and minus provision for loan losses (Prov). After rearranging this identity, the net interest revenue can be expressed as follows: II – IP = OC + Prov + P – NII. The above expression decomposes the margin into the following cost and profit components: reserve requirement costs, operational costs, loan loss provision costs, profitability and non-interest income (with a negative sign).

Findings

A trend analysis of commercial banks’ interest rate spreads in Oman exposes the following facts: First, the implicit interest margin is relatively small (in the neighborhood of 1 percentage point); second, profits constitute a substantial proportion of the margin; third, the share of operating costs in the margin has been broadly constant over time; fourth, reserve requirement costs have been reduced following the decline of the reserve requirement ratio; and fifth, the weighted average interest rate on deposits base is lower than the rate of inflation.

Originality/value

This work is original.

Article
Publication date: 16 August 2018

Manamgoda Gamage Nimantha Manamgoda, B.A.K.S. Perera and Colombapatabendige Savindi Ranthika Perera

Infrastructure systems play a dominant role in the economic growth of countries. Projects involved with the construction of roads, which is vital for the development of a country…

Abstract

Purpose

Infrastructure systems play a dominant role in the economic growth of countries. Projects involved with the construction of roads, which is vital for the development of a country, are financed mainly using borrowed funds because of the reliability of debt financing. The cost of borrowing is the interest that has to be paid. In Sri Lanka, there is a high tendency for interest rates of bank loans to fluctuate, and this makes the road projects in the country that are funded with borrowed money to be highly risky. Thus, this paper aims to identify the impact of bank loan interest rates on road construction in Sri Lanka.

Design/methodology/approach

The study consisted of two questionnaire surveys conducted among financial specialists and road construction experts, followed by a documentary review. The collected data were analysed using Relative Importance Index. The relationship between the interest rates of bank loans and the prices of the resources used in road projects were determined using regression and correlation analyses.

Findings

The research revealed a strong, linear relationship between interest rate fluctuations and bitumen, aggregate base course, metal and earth price fluctuations. It also identified the pattern of interest rate fluctuations to help practitioners to predict the pattern of input price variations.

Originality/value

When developing the capital structure of road projects, it is necessary to consider the prices of materials used in the projects when determining the financial risks of debt financing.

Details

Journal of Engineering, Design and Technology, vol. 16 no. 4
Type: Research Article
ISSN: 1726-0531

Keywords

Article
Publication date: 16 March 2021

Faten Moussa and Ezzeddine Delhoumi

Several theoretical and empirical studies have shown the significant effects of economic and environmental factors on a large number of financial indicators. In this paper the…

Abstract

Purpose

Several theoretical and empirical studies have shown the significant effects of economic and environmental factors on a large number of financial indicators. In this paper the authors are going to study whether the main stock market index, is impacted by the variations of the exchange rate and the interest rates.

Design/methodology/approach

This paper studies the response of the index market return to fluctuations in the interest rate and the exchange rate in five countries from the MENA region (Tunisia, Morocco, Egypt, Turkey and Jordan). To investigate whether this impact exists, the authors used the non-linear autoregressive distributed lag (NARDL) model with daily data from June 1998 to June 2018.

Findings

The application of the non-linear ARDL model confirms the presence of cointegration between return index, interest rate and exchange rate. The results show that the asymmetry hypothesis is only valid for the short run which suggests that the market index is sensitive to the variation in the interest rate and exchange rate. This means that these macroeconomic factors play an important role in the MENA region stock markets.

Originality/value

The findings confirm that the index returns in the MENA region stock markets are related to macroeconomic fundamentals such as the exchange rate and the real interest rate. The reaction of some indices is sensitive to whether the shocks are positive or negative. This finding may help investors to choose their strategies starting from these changes. Accordingly, policy makers must pay attention to the development progress of stock market.

Details

International Journal of Emerging Markets, vol. 17 no. 10
Type: Research Article
ISSN: 1746-8809

Keywords

Open Access
Article
Publication date: 7 November 2018

Chinedu Francis Egbunike and Chinedu Uchenna Okerekeoti

The purpose of this paper is to explore the interrelationship between macroeconomic factors, firm characteristics and financial performance of quoted manufacturing firms in…

50115

Abstract

Purpose

The purpose of this paper is to explore the interrelationship between macroeconomic factors, firm characteristics and financial performance of quoted manufacturing firms in Nigeria. Specifically, the study investigates the effect of interest rate, inflation rate, exchange rate and the gross domestic product (GDP) growth rate, while the firm characteristics were size, leverage and liquidity. The dependent variable financial performance is measured as return on assets (ROA).

Design/methodology/approach

The study used the ex post facto research design. The population comprised all quoted manufacturing firms on the Nigerian Stock Exchange. The sample was restricted to companies in the consumer goods sector, selected using non-probability sampling method. The study used multiple linear regression as the method of validating the hypotheses.

Findings

The study finds no significant effect for interest rate and exchange rate, but a significant effect for inflation rate and GDP growth rate on ROA. Second, the firm characteristics showed that firm size, leverage and liquidity were significant.

Practical implications

The study has implications for regulators and policy makers in formulating policy decisions. In addition, managers may better understand the interplay between macroeconomic factors, firm characteristics and profitability of firms.

Originality/value

Few studies have addressed the interplay of macroeconomic factors and firm characteristics in determining the profitability of manufacturing firms in the country and developing countries in general.

Details

Asian Journal of Accounting Research, vol. 3 no. 2
Type: Research Article
ISSN: 2443-4175

Keywords

Article
Publication date: 15 June 2021

Mustafa Kırca and Şerif Canbay

This study aims to investigate whether changes in consumer interest rate, exchange rate and housing supply have permanent effects on housing inflation in Turkey.

Abstract

Purpose

This study aims to investigate whether changes in consumer interest rate, exchange rate and housing supply have permanent effects on housing inflation in Turkey.

Design/methodology/approach

For this purpose, data from 2010M01 to 2020M06 and changes in consumer interest rate, exchange rate, housing supply and housing inflation were used. Relationships between variables are analyzed first by the Granger causality tests and then the conditional frequency domain causality tests. The conditional frequency domain causality test specifically reveals the permanent causality between variables, whether there is a permanent effect.

Findings

According to the Granger causality test results, there are causality relationships from changes in the consumer interest rate and exchange rate to housing inflation. However, there is no causality relationship between housing supply and housing inflation. According to the conditional frequency domain causality test results, there is causality for the permanent and mid-term from changes in the consumer interest rate to housing inflation and causality for the mid-term and temporary from changes in the exchange rate to housing inflation. Additionally, it was found that there are causality relationships between changes in the consumer interest rate and changes in the exchange rate.

Research limitations/implications

The first limit of the study is that only 2010M01-2020M06 months can be considered. Because the date that variables started common is 2010M01. Besides, there is a limit in the study in variables used. Many variables, both micro and macro, can be added to affect housing inflation.

Originality/value

Housing inflation is a remarkable issue in Turkey. There is an increase in the number of studies on the subject in recent years. For this reason, the study is trying to contribute by approaching the subject from a different angle. The most important contribution of the study is that it has not been investigated whether the determinants of housing inflation have permanent or temporary effects, which were not done in previous studies. In addition, the method used reveals how many months the effects of changes in exchange rates, consumer interest rates and housing supply on housing inflation last. Based on the findings obtained from the methods, important economic and political implications have been put forward in depth.

Details

International Journal of Housing Markets and Analysis, vol. 15 no. 2
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 27 November 2019

Andreas Hecht

This paper aims to identify how non-financial firms manage their interest rate (IR) exposure. IR risk is complex, as it comprises the unequal cash flow and fair value risk. The…

Abstract

Purpose

This paper aims to identify how non-financial firms manage their interest rate (IR) exposure. IR risk is complex, as it comprises the unequal cash flow and fair value risk. The paper is able to separate both risk types and investigate empirically how the exposure is composed and managed, and whether firms increase or decrease their exposure with derivative transactions.

Design/methodology/approach

The paper examines an unexplored regulatory environment that contains publicly reported IR exposure data on the firms’ exposures before and after hedging. The data were complemented by indicative interviews with four treasury executives of major German corporations, including two DAX-30 firms, to include professional opinions to validate the results.

Findings

The paper provides new empirical insights about how non-financial firms manage their interest rate exposure. It suggests that firms use hedging instruments to swap from fixed- to floating-rate positions predominantly in the short-to medium-term, and that 63 [37] per cent of IR firm exposure are managed using risk-decreasing [risk-increasing/-constant] strategies.

Practical implications

Interviewed treasury executives suggest that the advanced disclosures benefit various stakeholders, ranging from financial analysts and shareholders to potential investors through more meaningful analyses on firms’ risk management activities. Further, the treasury executives indicate that the new data granularity would enable firms to carry out unprecedented competitive analyses and thereby benchmark and improve their own risk management.

Originality/value

The paper is the first empirical study to analyze the interest rate activities of non-financial firms based on actually reported exposure data before and after hedging, rather than using proxy variables. In addition, the new data granularity enables a separate analysis of the cash flow and fair value risk to focus on the non-financial firms’ requirements.

Details

The Journal of Risk Finance, vol. 20 no. 5
Type: Research Article
ISSN: 1526-5943

Keywords

21 – 30 of over 196000