International Financial Markets and Institutions
Select domestic financial markets and institutions in a country of your choice and prepare a comparative report on their behaviour during COVID-19 and the Global Financial Crisis (GFC). You should use the same country for all parts of the report. Your discussion should be supported by illustrations and academic literature. You are asked to include the following topics:
Question 1. The Money Markets: Examine how the money markets reacted differently during Covid-19 compared to GFC. In the context of the crises, critically discuss the evolution of interest rates (i.e., discount rates and yields) and credit spreads of various money market instruments during both crises and explain the factors that caused such trends.
Question 2. The Bond Markets. Compare the reaction of bond markets during both crises. Critically evaluate how portfolio value, current yield and yield to maturity would be influenced by investors (i) selling their bond portfolio during the crises but before maturity, (ii) holding the bond portfolio till maturity, and (iii) starting to invest in bond markets during the crises. Support your discussion with illustrations.
Question 3. The Stock Markets. Illustrate the reaction of stock markets during the crises and the factors that explain these movements. Do you find evidence of market (in)efficiency?
Question 4. Central Bank Intervention: During periods of distress, central banks intervene in the financial markets to maintain financial stability and support economic growth. Evaluate similarities and differences in the intervention of the country's central bank during Covid-19 and GFC.