Study on comparison of interest rates between short term and long term financial debt securities
Abstract
The subject of interest rates forms an important area of study in
macroeconomics. The behaviour of interest rates directly affect ease of
access and cost of capital, consumer prices and the general cost of
living.
This study aims at comparing interest rates of short-term and long-term
financial debt securities issued by the Kenya government through the
central bank from the years 1993 to 2002. Secondly, it aims at
determining any significant changes in the yield curve for the same
period. The period of study l.e. 1993-2002 is a unique one because it
was just after the financial liberalization.
The research sample constitutes all short-term and long-term financial
debt securities issued by the government during this period. The study
shows that the average interest rate on short-term financial debt
securities was higher than the average interest rate on long-term
financial debt securities. This was at 21.636% and 16.10% for short
term and long term financial debt securities respectively.
The research further found a high dispersion on the short term mean
rate, at a standard deviation of 13.916 while that on long term mean
rate was 3.32. Its not difficult to see why this is so as the highest
average interest rate was recorded at 84.67% and was recorded on the
91 days treasury bill in the month of July 1993. The lowest interest
rate recorded was a low of 6.97%, recorded on the six-month treasury
bill in April 1999. Both high and low were on short term interest rates.
A downward sloping or inverted yield curve was obtained representing
periods of very high interest rates. The result findings are consistent
wJth the economic conditions that were prevailing during the period of
study. It was a period of high inflation especially the early part of the
period under study and a tighter monetary policy was introduced to try
and mop-up excess liquidity in the economy.
Citation
Masters Of Business Administration (MBA) Degree, University of NairobiPublisher
University of Nairobi School of Business
Description
A management research project presented in partial fulfillment
of the requirements for the Degree of Master of Business
Administration of the University of Nairobi