Factors affecting the real interest rates of selected short-term instruments for the period July 1992-December 1997

• Main Author: Aragon, Francis Arnel E.
• Format: text
• Language: English
• Published: Animo Repository 1998
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/16535
• Institution: De La Salle University

This paper is about the Factors Affecting the real interest rates of selected short-term instruments for the period July 1992-December 1997. The research problem is about determining which of the following nine (9) factors or independent variables: (1) Philippine-wide inflation rates (2) Money supply (3) Peso-dollar exchange rate (4) New Manila reference rates (5) Tax collections (6) 91-day Philippine treasury volume traded : significantly affected the real interest rates for non-financial commercial papers (C/P), Certificates of Time Deposits (CTD), and Promissory Notes (P/N), during the period under investigation. For this paper, the objectives are: (1) to determine which of the 9 factors above showed a linear relationship with the short-term real rates for the 90-day CTDs, the 90-day non-financial C/Ps, and the 90-day P/Ns (2) To determine which of the 9 factors greatly affected real rates of the short-term assets mentioned (3) To determine which short-term security earns high return and which security bears high risk, using risk-return analysis. The generic null hypothesis is that No significant relationship exists between the 9 factors or independent variables and the 3 dependent variables. On the other hand, the generic alternative hypothesis are that there is a significant relationship between them. As to sample size, there are 66 data observations evaluated at 96% confidence. Analytically, the framework of this paper is that: If (any of) the 9 factors or independent variables is correlated with the 3 dependent variables, then a change in (any of) the 9 factors is accompanied by a change in the 3 dependent variables. With respect to research design, the causal-comparative method is the one being used in this paper. Thus, the quantitative tool chosen is multiple regression, using the coefficients of correlation r and of determination (RSQ) to establish association, and the t-statistic and the f-statistic to test for significance. In the computations, Microsoft Excel is the software. In summary, it was found out that C/P real interest rates are directly related to the Peso-Dollar rate, the T-Bill rate, and the New MRR. Furthermore, the evidence indicates that C/Ps are the most profitable investments compared to CTDs and P/Ns, from 1992-1997. In addition, CTD real rates are directly related to the New MRR and the T-Bill volume. CTDs are the least profitable assets among the three. Finally, in the case of the P/N real rates, they are directly related to the Peso-Dollar rate and the 91-day T-bill rates. P/Ns are also the most risky investment alternative among the three. However, all the three dependent variables (C/P, CTD, and P/N real interest rates are inversely related to the inflation rate (based on the CPI for the whole Philippines). Among other things, in the Philippine money market from July 1992 through December 1997, the financial institutions include: (1) There is evidence that the lowest returns go with the lowest risk (CTDs) (2) There is no evidence that the highest returns (C/Ps) can be achieved by facing the highest risk and (3) There is no evidence that the highest risk (P/Ns) guarantees the highest returns. Therefore, premises considered, the paper ends with recommendations that ultimately bat for leading the Philippine economy from being a presently emergent market into one becoming an efficient market.