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  • Author: Marina Pepić x
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Duration and Convexity of Bonds

Abstract

The wide impact that interest rate changes have on business performance, the fact that all market participants are, more or less, exposed to interest rate risk, as well as high volatility in interest rates in recent years, make interest rate risk one of the most significant risks. It is impossible to neutralize interest rate risk completely, but it is desirable to reduce it to a minimum. In order to effectively manage it, interest rate risk must first be identified and measured. This paper aims to show the two methods of measuring the interest rate risk - duration and convexity. The concept of duration is a good indicator of changes in the price of bonds but only for small changes in the interest rates. In case of major changes, the duration gives overestimated/underestimated approximation of the bond price, because bond price-yield relationship is not linear. Therefore, when measuring interest rate risk, convexity of bonds must be taken into account. Modified duration and convexity taken together provide the best approximation of the sensitivity of bond prices to changes in interest rates.

Open access
The Impact of the Global Financial Crisis on World Trade

Abstract

Modern economic and financial crisis has caused a significant reduction in trade flows, for the first time since the Second World War, so it is often referred to as the trade crisis. Despite many benefits and disadvantages of liberalization as key features of modern age, the current crisis has led to a reassessment of these positions affecting the introduction of protectionist measures and the strengthening of regional ties and alliances. The question that arises is how the future trade flows will look like and whether regional integration will prevail over multilateral and liberalized trading system. The financial crisis quickly became the economic crisis that hit all sectors. The first visible effects of the crisis were reflected in a sharp fall in trade flows, and conditioned drop in demand, which led to a fall in production and employment. The first reactions of numerous countries were protectionist measures in order to protect national interests. This again aroused debate between proponents of liberalism and protectionism, where the effects and the origins of the crisis favored the latter. Economic decision makers, faced with the pressing economic problems, tried to mitigate them (at least in the short-term) turning more to regional partners, and less to the world market.

Open access
Determinants of Currency Substitution in Southeast European Countries

Abstract

Currency substitution is widespread in less developed countries. Since it increases financial vulnerability and limits the effectiveness of monetary policy, it is often in the focus of scientists and experts. In this paper, we analyze the importance of euroization determinants in Serbia and neighboring countries - Albania, Bosnia and Herzegovina, FYR Macedonia, Romania and Croatia for the period 2003-2014. We examine the impact of domestic inflation, nominal exchange rate of the domestic currency against the euro, interest rate spread on domestic and foreign currency, foreign currency inflow in the form of foreign direct investments and exports, as well as the euroization of banks’financial resources on the degree of loan euroization. The results obtained by multiple regression panel methods confirm the statistical significance and assumed direction of the influence of all analyzed variables except inflation and current account balance.

Open access