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How falling currency and interest rate effects the bond prices?

+4 votes
How falling currency and interest rate effects the bond prices?
posted Dec 18, 2014 by Salil Agrawal

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2 Answers

+1 vote
Best answer

Yield at maturity is fixed so if interest rate goes down market price of the bond increase or vice-versa.

Lets see this with example -
There is a bond of $100 for two years at interest rate of 10% means at the end of two years bond holder has the right to receive $121.
If interest rate remains constant the bond will trade at $110 after one year. Now say if interest rate goes down to 5% (from 10%) then bond will trade close to $115 because market is expecting 5% return and vice-versa.

answer Mar 10, 2015 by Nikhil Pandey
+1 vote

Higher the interest rate, lower the bond price;
Currency rate depends on import/exports of the country; countries try to weaken their currency so that they can export more; Some countries try to control their currency from falling by increasing their interest rates.

answer Mar 9, 2015 by Neti Srinivas
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