Repo Rate – Rate at which banks borrow money from the RBI. Rate at which the RBI lends shot-term money to the banks against securities. When the repo rate increases borrowing from RBI becomes more expensive. 

Crr:Banks in India are required to hold a certain proportion of their deposits in the form of cash. However, actually Banks don’t hold these as cash with themselves, but deposit such case with Reserve Bank of India (RBI) / currency chests, which is considered as equivlanet to holding cash with RBI. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and is known as the CRR or Cash Reserve Ratio. Thus, When a bank’s deposits increase by Rs100, and if the cash reserve ratio is 6%, the banks will have to hold additional Rs 6 with RBI and Bank will be able to use only Rs 94 for investments and lending / credit purpose. Therefore, higher the ratio (i.e. CRR), the lower is the amount that banks will be able to use for lending and investment. This power of RBI to reduce the lendable amount by increasing the CRR, makes it an instrument in the hands of a central bank through which it can control the amount that banks lend. Thus, it is a tool used by RBI to control liquidity.

Ensures that a portion of bank deposits is kept with RBI and is totally risk-free.

The Reserve Bank of India (Amendment) Bill, 2006, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate ( [Before the enactment of this amendment the Reserve Bank could prescribe CRR for scheduled banks between 3 per cent and 20 per cent of total of their demand and time liabilities].

Currency Chest: It is the bank place maitained by public setor banks which is authorised by RBI to keep currency for distribution.The balance of currency chests of agent banks are the property of RBI. The maintainance cost of currency chests is born by RBI.

SLR:Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR).  RBI is empowered to increase this ratio up to 40%. 

MIBOR:The interest rate at which banks can borrow funds, in marketable size, from other banks in the Indian interbank market. The Mumbai Interbank Offered Rate (MIBOR) is calculated everyday by the National Stock Exchange of India (NSEIL) as a weighted average of lending rates of a group of banks, on funds lent to first-class borrowers.

The MIBOR was launched on June 15, 1998 by the Committee for the Development of the Debt Market, as an overnight rate. The NSEIL launched the 14-day MIBOR on November 10, 1998, and the one month and three month MIBORs on December 1, 1998. Since the launch, MIBOR rates have been used as benchmark rates for the majority of money market deals made in India.

MIFOR:A rate that Indian banks and other derivative market participants used as a benchmark for setting prices on forward rate agreements and interest rate derivatives. MIFOR was a mix of the London Interbank Offer Rate (LIBOR) and a forward premium derived from Indian forex markets.

Initially, the intention of MIFOR was for hedging purposes. However, many corporate entities used MIFOR for currency speculation.

The Reserve Bank of India (RBI) grew concerned over the potential economic downside risk by having an abundance of speculative off-balance-sheet entities (such as currency swaps). The RBI did ban the use of MIFOR and other non-rupee denominated benchmarks on May 20, 2005 in hopes that doing so will lower the amount of currency speculation. However, the RBI did relax the ban somewhat on the following May 30 and allowed MIFOR to be only used in interbank related transactions.

CALL/NOTICE/TERM MONEY: http://stcipd.com/About_us.aspxThe call/notice/term money market is a market for trading very short term liquid financial assets that are readily convertible into cash at low cost. The money market primarily facilitates lending and borrowing of funds between banks and entities like Primary Dealers. An institution which has surplus funds may lend them on an uncollateralized basis to an institution which is short of funds. Call Money : The period of lending may be for a period of 1 day which is known as call money Notice Money : between 2 days and 14 days which is known as notice money. Term money refers to borrowing/lending of funds for a period exceeding 14 days. The interest rates on such funds depends on the surplus funds available with lenders and the demand for the same which remains volatile. 

This market is governed by the Reserve Bank of India which issues guidelines for the various participants in the call/notice money market. The entities permitted to participate both as lender and borrower in the call/notice money market are Scheduled Commercial Banks (excluding RRBs), Co-operative Banks other than Land Development Banks and Primary Dealers. 

Scheduled commercial banks are permitted to borrow to the extent of 125% of their capital funds in the call/notice money market, however their fortnightly average borrowing outstanding should not exceed more than 100% of their capital funds (Tier I and Tier II capital). At the same time SCBs can lend to the extent of 50% of their capital funds on any day, during a fortnight but average

fortnightly outstanding lending should not exceed 25 per cent of their capital funds. 

Co-operative Banks are permitted to borrow upto 2% of their aggregate deposits as end of March of the previous financial year in the call/notice money market. 

Primary Dealers can borrow on average in a reporting fortnight up to 200% of the total net owned funds (NOF) as at end-March of the previous financial year and lend on average in a reporting fortnight up to 25% of their NOF. 

The average daily turnover in the call money market is around Rs. 12,000-13,000 cr every day and trading occurs between 9.30 am to 5.00 pm on Monday to Friday and 9.30 am to 2.30 pm on Saturday. 

The trades are conducted both on telephone as well as on the NDS Call system, which is an electronic screen based system set up by the RBI for negotiating money market deals between entities permitted to operate in the money market. The settlement of money market deals is by electronic funds transfer on the Real Time Gross Settlement (RTGS) system operated by the RBI. The repayment of the borrowed money also takes place through the RTGS system on the due date of repayment. 

Inflation:http://eaindustry.nic.in/cmonthly.pdfWPI: Wholesale Price Index- The Wholesale Price Index or WPI is the price of a representative basket of wholesale goods. Some countries use the changes in this index to measure inflation in their economies, in particular India - The Indian WPI figure is released every 10 days and influences stock and fixed price markets. The Wholesale Price Index focuses on the price of goods traded between corporations, rather than goods bought by consumers, which is measured by the Consumer Price Index. The purpose of the WPI is to monitor price movements that reflect supply and demand in industry, manufacturing and construction. This helps in analyzing both macroeconomic and microeconomic conditions.

The official Wholesale Price Index for All Commodities(Base: 2004-05 = 100) for the month February, 2012 rose by 0.4 percent to 158.4 (Provisional) from 157.7 (Provisional) for the previous month.

INFLATIONThe annual rate of inflation, based on monthly WPI, stood at 6.95% (Provisional) for the month of February, 2012 (over February, 2011) as compared to 6.55% (Provisional) for the previous month and 9.54% during the corresponding month of the previous year. Build up inflation in the financial year so far was 5.95% compared to a build up of 8.66% in the corresponding period of the previous year.

Inflation for important commodities / commodity groups is indicated in Annex-1 and Annex-II.The movement of the index for the various commodity groups is summarized below:-

PRIMARY ARTICLES (Weight 20.12%)The index for this major group rose by 0.9 percent to 201.5 (Provisional) from 199.7 (Provisional) for the previous month. The groups and items for which the index showed variations during the month are as follows:-The index for Food Articles group rose by 0.5 percent to 192.3 (Provisional) from 191.4 (Provisional) for the previous month due to higher prices of ragi (4%), barley and fruits & vegetables (3% each), maize (2%) and fish-marine, beef & buffalo meat, tea, poultry chicken and fish-inland (1% each). However, the prices of condiments & spices (5%), jowar and egg (3% each), arhar and masur (2% each) and urad, moong and gram (1 % each) declined.

The index for Non-Food Articles group rose by 2.1 percent to 186.7 (Provisional) from 182.8 (Provisional) for the previous month due to higher prices of gaur seed (30%), flowers (26%), logs & timber and raw jute (9% each), gingelly seed (5%), groundnut seed and mesta (3% each) and cotton seed, soyabean and castor seed (1% each). However, the prices of copra (8%), niger seed (5%), raw cotton (3%), raw silk (2%) and raw rubber,rape& mustard seed and fodder (1% each) declined.

The index for Minerals group rose by 1.6 percent to 329.6 (Provisional) from 324.5 (Provisional) for the previous month due to higher prices of copper ore (11%), magnesite (10%) and iron ore and zinc concentrate (2% each). However, the prices of sillimanite (8%) and dolomite and barytes (1% each) declined.

FUEL & POWER(Weight 14.91%)The index for this major group rose by 0.2 percent to 173.2 (Provisional) from 172.8 (Provisional) for theprevious month due to higher prices of lignite (8%), furnace oil (5%) and light diesel oil and bitumen (2% each).However, the prices of aviation turbine fuel (2%) and naphtha (1%) declined.

MANUFACTURED PRODUCTS (Weight 64.97%)The index for this major group rose by 0.4 percent to 141.7 (Provisional) from 141.2 (Provisional) for the previous month. The groups and items for which the index showed variations during the month are as follows:-:-

The index for Beverages, Tobacco & Tobacco Products group rose by 1.3 percent to 166.8 (Provisional) from 164.7 (Provisional) for the previous month due to

higher prices of bidi (6%) and soft drinks & carbonated water (3%). However, the prices of dried tobacco (8%) declined.

The index for Textiles group rose by 0.4 percent to 127.1 (Provisional) from 126.6 (Provisional) for the previous month due to higher prices of jute sacking cloth and cotton yarn (1% each). However, the prices of jute yarn and man made fabric (2% each) and tyre cord fabric (1%) declined.

The index for Wood & Wood Products group rose by 0.2 percent to 163.5 (Provisional) from 163.2(Provisional) for the previous month due to higher prices of processed wood (1%).The index for Paper & Paper Products group declined by 0.1 percent to 132.3 (Provisional) from 132.4 (Provisional) for the previous month due to lower prices of paper pulp (3%) and maplitho paper, printing and writing paper and computer stationery (1% each). However, the prices of books/ periodicals/ journals (1%) moved up.

The index for Leather & Leather Products group declined by 0.5 percent to 130.6 (Provisional) from 131.2 (Provisional) for the previous month due to lower prices of leather garments & jackets and leathers (1% each).

The index for Rubber & Plastic Products group declined by 0.1 percent to 134.1 (Provisional) from 134.3 (Provisional) for the previous month due to lower prices of tubes (1%).

The index for Chemicals & Chemical Products group rose by 0.4 percent to 137.9 (Provisional) from 137.4 (Provisional) for the previous month due to higher prices of distemper (3%), non-cyclic compound and rubber chemicals (2% each) and di ammonium phosphate, basic inorganic chemicals and paints (1% each). However,the prices of hair / body oils and synthetic resin (1% each) declined.

The index for Non-Metallic Mineral Products group declined by 0.2 percent to 155.9 (Provisional) from 156.2 (Provisional) for the previous month due to lower prices of marbles (3%) and polished granite (2%). However, the prices of lime (7%) and white cement (1%) moved up.

The index for Basic Metals, Alloys & Metal Products group rose by 0.7 percent to 161.9 (Provisional) from 160.7 (Provisional) for the previous month due to higher prices of silver, pressure cooker and pencil ingots (3 % each), pig iron, gold & gold ornaments, ferro manganese, lead and melting scrap (2% each) and iron castings, rebars, steel castings, angles, rounds, wire rods, aluminium, joist & beams and hrc (1% each). However, the prices of nuts/bolts/screw/ washers and ferro silicon (1% each) declined.

The index for Machinery & Machine Tools group rose by 0.3 percent to 125.9 (Provisional) from 125.5 (Provisional) for the previous month due to higher prices of heat exchanger and insulators (4% each), electric switch gears and grinding /wet coffee machinery (3% each) and electrical pumps, earth moving machinery, fluorescent tubes and microwave oven (1% each).The index for Transport, Equipment & Parts group rose by 0.2 percent to 125.5 (Provisional) from 125.3 (Provisional) for the previous month due to higher prices of shafts and bus / mini bus / truck (1% each).However, the prices of parts of ships/boats etc. (7%) declined.

FINAL INDEX FOR THE MONTH OF DECEMBER, 2011 (BASE YEAR: 2004-05=100)For the month of December, 2011 the final Wholesale Price Index for All Commodities(Base: 2004-05=100) stood at 157.3 as compared to 156.9 (Provisional) and annual rate of inflation based on final index stood at 7.74 percent as compared to 7.47 percent (Provisional) reported on 16.01.2012.

Next date of press release: 16/04/2012 for the month of March, 2011Office of Economic Adviser, Ministry of Commerce & Industry, New Delhi,

CPI :Due to the rise in prices of rice, wheat atta, bajra, milk, mustard oil, chillies dry and

vegetables & fruits, India's inflation rates based on Consumer Price Index Numbers for

Agricultural Labourers (CPI-AL) and Consumer Price Index Numbers for Rural Labourers (CPI-

RL) rose to 6.34% and 6.68% respectively in February 2012, according to Ministry of Labour and

Employment.

During January, the rate of inflation based on the CPI-AL and CPI-RL stood at 4.92% and 5.27%

respectively.

Index Number Base Year

All   India   General Index

December 2011

January 2012

Consumer Price Index Numbers for Industrial Workers - CPI(IW)

2001=100

197 198 

    January 2012 February 2012

Consumer Price Index Numbers forAgricultural Labourers

1986-87= 100

618 

621 

Consumer Price Index Numbers for Rural Labourers

1986-87=100

619 

623

There is also Consumer Price Index for Urban Non-Manual Employees (CPI-UNME). Data released central statistical dept

CBLO :CCIL launched a new money market instrument, the Collateralised Borrowing and Lending Obligation (CBLO). 

It is a variant of liquidity adjustment facility, permitted by RBI. It is a mechanism to borrow and lend funds against securities for maturities of 1 day to 1 year. 

It is a tripartite repo transaction involving CCIL as 3rd party, which functions as intermediary or common counter party to borrower as well as lender. 

Borrower will be able to repay back even before maturity, compared to payment on due date under the existing Repo system. CBLO is expected to meet the needs of banks, FIs, PDs, MFs, NBFCs and companies for deploying their surplus funds, which have been phased out of the call money market operations. CBLO is issued at a discount to face value. Under CBLO, securities of borrower will be held in their constituent SGL account opened with CCIL and will not be transferred to lender.

Global Markets (Source: Wikipedia and Investopedia)

Dow Jones Industrial Average

Companies listed: 30

The Dow Jones Industrial Average, also called the Industrial Average, the Dow Jones, the Dow 30, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. It is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. Often referred to as "the Dow", the DJIA is the oldest and single most watched index in the world.

NASDAQ

Companies listed: 2784

The NASDAQ Stock Market, also known as simply the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. Stocks on

the Nasdaq are traditionally listed under four or five letter ticker symbols. If the company is a transfer from the New York Stock Exchange, the symbol may be comprised of three letters. As of Dec, 2011, there are 2784 listings, with a total capitalization of over $4.5 trillion. The NASDAQ has more trading volume than any other electronic stock exchange in the world. The Nasdaq is traditionally home to many high-tech stocks, such as Microsoft, Intel, Dell and Cisco.

S&P 500

Companies listed: 500

The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock market exchanges: the New York Stock Exchange and the NASDAQ. It is an index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. The index focus is U.S.-based companies although there are a few companies with headquarters in and/or incorporated in other countries.

FTSE

Companies listed: 100

FTSE 100 is a share index of the stocks of the 100 companies listed on the London Stock Exchange having the highest market capitalisation. The index represents roughly 80% of the market capitalization of the London Stock Exchange (LSE) as a whole. The Footsie consists of 100 blue chip stocks that trade on the London Stock Exchange. The index is maintained by the FTSE Group, which is jointly owned by the Financial Times and the London Stock Exchange. The FTSE gets its name from the acronym of its two parent companies. The index is weighted by market capitalization, so larger companies make up a larger share of the index.

DAX

Companies listed: 30

The DAX (DeutscherAktienIndeX, (German stock index)) is a blue chip stock market index consisting of the 30 major German companies trading on the

Frankfurt Stock Exchange. Prices are taken from the electronic Xetra trading system. According to Deutsche Börse, the operator of Xetra, DAX measures the performance of the Prime Standard’s 30 largest German companies in terms of order book volume and market capitalization. A free-float methodology is used to calculate the index weightings along with a measure of average trading volume. In a different twist from most indexes, the DAX is updated with futures prices for the next day, even after the main stock exchange has closed. Changes are made on regular review dates, but index members can be removed if they no longer rank in the top 45 largest companies, or added if they break the top 25.

Liquid Funds are a kind of mutual fund or debt fund which can be redeemed in as less as 24

hours. They invest in money market instruments. Money market is a market for short term

borrowing and lending and deals with debt instruments such as certificate of deposits,

commercial paper and treasury bills.

Most funds have a lock-in period of a maximum of three days to protect against procedural

(primarily banking) glitches, and offer redemption proceeds within 24 hours. However, some

funds may even have a lock in period of a week or a month or more. However, the tenure is

always far less than a normal mutual fund.

Features of Liquid funds:

No Entry and Exit load (sometimes exit load is charged if redeemed before the lock in period)

Low annual fee 0.30 to 0.70%

Variable Minimum investment amount according to scheme

Great tax benefit

Easy liquidation

An average 8% p.a return on liquid funds

Liquid funds have the restriction that they can only have 10 per cent or less mark-to-market

component, indicating a lower interest rate risk.

Ultra Short term Fund: A type of bond fund that invests only in fixed-income instruments

with very short-term maturities. An ultra-short bond fund will ideally invest in instruments

with maturities around one year.

Liquidity adjustment facility (LAF): A monetary policy tool which allows banks to borrow money through repurchase agreements and is used to aid banks in adjusting the day to day mismatches in liquidity. Consists of repo and reverse repo operations.

Repo or repurchase option is a collaterised lending i.e. banks borrow money from Reserve bank of India to meet short term needs by selling securities to RBI with an agreement to repurchase the same at predetermined rate and date. The rate charged by RBI for this transaction is called the repo rate. Repo operations therefore inject liquidity into the system. (8.5% at present)

Reverse repo operation is when RBI borrows money from banks by lending securities. The interest rate paid by RBI is in this case is called the reverse repo rate. Reverse repo operation therefore absorbs the liquidity in the system. (7.5% at present)

The collateral used for repo and reverse repo operations comprise of Government of India securities.

Methodology:

The Financial Markets Committee, consisting of the operational Departmental Heads, which meets every day in the morning to assess market conditions, is responsible for decisions relating to the LAF. The Committee meets again at 12 noon to assess the bids received under LAF.

The exact quantum of liquidity to be absorbed or injected and the accompanying repo and reverse repo rates are determined by the Committee after taking into consideration, the liquidity conditions in the market, the interest rate situation and the stance of monetary policy.

The decisions are based on a myriad factors including net inflows and outflows on account of forex operations, current account balances of the banks against the CRR requirements, open market operations, redemption of loans and coupon payments, announcement of new issues by the government, un-drawn liquidity support on account of export refinance, collateralised lending facility to banks and level I refinance to PDs and the overall situation of the call money market. The rate of interest however is determined on the basis of the bids received from the market.Call rate is the inter-bank interest rate on funds that are not deposited for a fixed period. It relates to amount deposited for an indefinite time with a bank.

AAA Corporate Bond Spread: AAA Corporate bonds are regarded as riskier than the government securities by the investors. As a result of this, the yield on a AAA Corporate bond will be higher than the yield on a G-sec. The difference in basis points in the corporate and government bonds is called the AAA Corporate Bond Spread. A lower value indicates a large risk taking appetite among the investors.

1. What is a Government Security?

1.1 A Government security is a tradable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more). In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). Government securities carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.

a. Treasury Bills (T-bills)

1.2 Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest. They are issued at a discount and redeemed at the face value at maturity. For example, a 91 day Treasury bill of Rs.100/- (face value) may be issued at say Rs. 98.20, that is, at a discount of say, Rs.1.80 and would be redeemed at the face value of Rs.100/-. The return to the investors is the difference between the maturity value or the face value (that is Rs.100) and the issue price .The Reserve Bank of India conducts auctions usually every Wednesday to issue T-bills. Payments for the T-bills purchased are made on the following Friday. The 91 day T-bills are auctioned on every Wednesday. The Treasury bills of 182 days and 364 days tenure are auctioned on alternate Wednesdays. T-bills of of 364 days tenure are auctioned on the Wednesday preceding the reporting Friday while 182 T-bills are auctioned on the Wednesday prior to a non-reporting Fridays. The Reserve Bank releases an annual calendar of T-bill issuances for a financial year in the last week of March of the previous financial year. The Reserve Bank of India announces the issue details of T-bills through a press release every week.

b. Cash Management Bills (CMBs)

1.3 Government of India, in consultation with the Reserve Bank of India, has decided to issue a new short-term instrument, known as Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the Government. The CMBs have the generic character of T-bills but are issued for maturities less than 91 days. Like T-bills, they are also issued at a discount and redeemed at face value at maturity. The tenure, notified amount and date of issue of the CMBs depends upon the temporary cash requirement of the Government. The announcement of their auction is made by Reserve Bank of India through a Press

Release which will be issued one day prior to the date of auction. The settlement of the auction is on T+1 basis.

c. Dated Government Securities

1.4 Dated Government securities are long term securities and carry a fixed or floating coupon (interest rate) which is paid on the face value, payable at fixed time periods (usually half-yearly). The tenor of dated securities can be up to 30 years.

The Public Debt Office (PDO) of the Reserve Bank of India acts as the registry / depository of Government securities and deals with the issue, interest payment and repayment of principal at maturity. Most of the dated securities are fixed coupon securities.

The nomenclature of a typical dated fixed coupon Government security contains the following features - coupon, name of the issuer, maturity and face value. For example, 7.49% GS 2017 would mean:

Coupon : 7.49% paid on face value

Name of Issuer : Government of India

Date of Issue : April 16, 2007

Maturity : April 16, 2017

Coupon Payment Dates : Half-yearly (October 16 and April 16) every year

Minimum Amount of issue/ sale : Rs.10,000

Yield Curve

The shape of the yield curve is closely scrutinized because it helps to give an idea of future interest rate change and economic activity. There are three main types of yield curve shapes: normal, inverted and flat (or humped). A normal yield curve (pictured here) is one in which longer maturity bonds have a higher yield compared to shorter-term bonds due to the risks associated with time. An inverted yield curve is one in which the shorter-term yields are higher than the longer-term yields, which can be a sign of upcoming recession. A flat (or humped) yield curve is one in which the shorter- and longer-term yields are very close to each other, which is also a predictor of an economic transition. The slope of the yield curve is also seen as important: the greater the slope, the greater the gap between short- and long-term rates.

Reading the Yield Curve

It is frequently displayed graphically. With the understanding that the shorter the maturity, the more closely we can expect yields to reflect (and move in lock-step with) the fed funds rate, we can look to points farther out on the yield curve for a market consensus of future economic activity and interest rates.

The slope of the yield curve tells us how the bond market expects short-term interest rates (as a reflection of economic activity and future levels of inflation) to move in the future.

Use the Yield Curve to Help Make Top-Down Investment Decisions

Interpreting the slope of the yield curve is a very useful tool in making top-down investment decisions. For example, if you invest in equities, and the yield curve says to expect an economic slowdown over the next couple years, you might consider moving your allocation of equities toward companies that perform relatively well in slow economic times, such as consumer staples. On the other hand, if the yield curve says that interest rates are expected to increase over the next couple of years, an allocation toward cyclical companies such as luxury goods makers or entertainment companies makes sense.

Forex Rates

Look to Bond Yields

Believe it or not, currency and bond markets are very closely related.

The direction of both investment assets is widely dependent on a country's economic environment and monetary policy. If an economy is showing strength, global investors will buy bonds that are being offered by a particular country – always looking for stable and high rates of return. This will cause demand for the country's currency to increase, thus appreciating the value of the currency. Global investors interested in investing in the country (and its infrastructure) will always have to transact in the country's currency. They go hand in hand.

This is the reason why money managers will watch short-term bond yield patterns for confirmation of a forming trend in the currency market. A movement in one asset can foretell or confirm the move in another asset.

One currency pair that shows off this relationship is the U.S. dollar/Japanese yen exchange rate. In the FX market the USD/JPY currency pair moves in relative sync with short-term Japanese government notes – particularly Japan's two-year notes. In Figure 1, we can see the pattern was particularly strong throughout most of 2010. During this time, market speculation had sided with an appreciation in the Japanese yen. With hints of a global recovery surfacing, Japanese exporters were rebounding faster than their U.S. counterparts – leading to higher growth in Japan. As a result, global investors betting on better prospects in Asia invested in Japanese short-term debt. The demand helped to boost the Japanese yen's appreciation against the U.S. dollar from May to September 2010.

CD Rates:

A certificate of Deposit (CD) is a time deposit, a financial product commonly offered to consumers by banks, thrift institutions, and credit unions.

CDs are similar to savings accounts in that they are insured and thus virtually riskfree; they are "money in the bank". CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for banks and by the National Credit Union Administration (NCUA) for credit unions. They are different from savings accounts in that the CD has a specific, fixed term (often monthly, three months, six months, or one to five years), and, usually, a fixed interest rate. It is intended that the CD be held until maturity, at which time the money may be withdrawn together with the accrued interest.

In exchange for keeping the money on deposit for the agreed-on term, institutions usually grant higher interest rates than they do on accounts from which money may be withdrawn on demand, although this may not be the case in an inverted yield curve situation. Fixed rates are common, but some institutions offer CDs with various forms of variable rates. For example, in mid-2004, interest rates were expected to rise, many banks and credit unions began to offer CDs with a "bump-up" feature. These allow for a single readjustment of the interest rate, at a time of the consumer's choosing, during the term of the CD. Sometimes, CDs that are indexed to the stock market, thebond market, or other indices are introduced.

A few general guidelines for interest rates are:

A larger principal should receive a higher interest rate, but may not.

A longer term will usually receive a higher interest rate, except in the case of an inverted yield curve (i.e. preceding a recession)

Smaller institutions tend to offer higher interest rates than larger ones.

Personal CD accounts generally receive higher interest rates than business CD accounts.

Banks and credit unions that are not insured by the FDIC or NCUA generally offer higher interest rates.

CP

In the global money market, commercial paper is an unsecured promissory note with a fixed maturity of 1 to 270 days. Commercial paper is a money-market security issued (sold) by large banks and corporations to get money to meet short term debt obligations (for example, payroll), and is only backed by an issuing bank or corporation's promise to pay the face amount on the maturity date specified on the note. Since it is not backed by collateral, only firms with excellent credit ratings from a recognized rating agency will be able to sell their commercial paper at a reasonable price. Commercial paper is usually sold at a discount from face value, and carries higher interest repayment rates than bonds. Typically, the longer the maturity on a note, the higher the interest rate the issuing institution must pay. Interest rates fluctuate with market conditions, but are typically lower than banks' rates.[1]