2.2.2 MONETARY POLICY IN NIGERIA: A REVIEW MONETARY POLICY, SINCE 1986

The Structural Adjustment Programme (SAP) was adopted in July 1986 against the cash in the international oil market and the resultant deteriorating economic conditions in the country. It was designed to achieve fiscal balance and balance of payment viability by altering and restricting the production and consumption

MONETARY POLICY IN NIGERIA: A REVIEW MONETARY POLICY, SINCE 1986

The Structural Adjustment Programme (SAP) was adopted in July 1986 against the cash in the international oil market and the resultant deteriorating economic conditions in the country. It was designed to achieve fiscal balance and balance of payment viability by altering and restricting the production and consumption

INTEREST RATES, BOND PRICES, AND THE TERM STRUCTURE

 

There is a very close connection between bond prices and interest rates. We will focus on interest rate calculated from prices of traded US government securities

and show how the interest rate on a particularly simple type of security can be derived solely from it price. We focus on yields derived solely from it price. We focus on yields derived from US government securities because these assets are backed by the full faith and credit of the government and, therefore, have virtually no default risk.

WHY DOES INTEREST RATE VOLATILITY MATTER?

 

The variability of interest rates affects decision about how to save and invest. Investors differ in their willingness to hold risky assets such as stocks and bound. When the returns to holding stocks and bonds are highly volatile, investors who rely on these assets to provide for their consumption face a relatively large chance of having low consumption at any given time. For example, before retirement, people receive a steady stream of income that helps to buffer the changes in wealth associated with changes in the returns on their investment portfolios.

THE CYCLICAL VOLATILITY OF INTEREST RATES

 

The variability short-term and long-term interest rate is a prominent feature of the economy. Interest rates change in response to a variety of economic events, such as changes in federal policy, crises in domestic and international financial markets, and changes in the prospects for long term economics growth and inflation. However, economic events such as these tend to be irregular. There is a more regular variability of interest rate associated with the business cycle, the expansions  and  contractions  that  the  economy  experience  overtime.

FACTORS THAT AFFECT VOLATILITY

Region and country economic factor such as factor and interest rate policy, contribute  to  the  directional  changes  of  the  market  and  thus  volatility.  For example in many countries, the central bank sets the short-term interest rates for overnight borrowing by banks. When they change the overnight rate can cause stock markets to react, sometimes violently.

VOLATILITY’S IMPACT ON MARKET RETURNS

 

Many investors realize that the stock market is a volatile place to invest their money. The daily quarterly and annual moves can be dramatic, but it is this volatility that also generates the market returns investors experience.

Volatility is a measure of dispersion around the means or average return of a security. One way to measure volatility is by using the standard deviation, which tells you how tightly the price of a stock is grouped around the means or moving average (MA). When the prices are tightly bunched together, the standard deviation is small. When the price spread apart, you have a relatively large standard deviation.