FINANCIAL MANAGEMENT

YIELD CURVE OF SWITZERLAND

Sheraz Arshad
MBA02101014

INTRODUCTION
Switzerland is a peaceful, prosperous and modern market economy with low unemployment, a highly skilled labor force, and per capita GDP among the highest in the world. Switzerlands economy benefits from a highly developed services sector, led by financial services, and a manufacturing industry that specializes in hightechnology, knowledge-based production. The global financial crisis and resulting economic downturn put Switzerland in a recession in 2009 as global export demand stalled. The Swiss National Bank during this period effectively implemented a zero-interest rate policy in a bid to boost the economy and prevent appreciation of the franc. Between 1980 and 1999, The Swiss National Bank (SNB) conducted monetary policy with the seasonally adjusted monetary base as monetary indicator as a target. From 1999 Onwards, the SNB is following a monetary policy framework based on three key elements first, the SNB pursues price stability in the medium term as defined by a CPI inflation rate of less than 2% second, and the central bank uses an inflation forecast in order to communicate to the public its long-term monetary policy direction. Lastly the SNB uses a target range for the three month LIBOR rate in order to implement its short-term policy targets. In order to reach the target range, the SNB

conducts short-term repo transaction with maturities between one day and several weeks.

YIELD CURVE

MATURITIE S 1 MONTH 3MONTHS 6MONTHS 12MONTHS 2 YEARS 3 YEARS 4 YEARS 5 YEARS 7 YEARS 8 YEARS 10 YEARS 20 YEARS 30 YEARS

INTERES RATES 0.13 0.17 0.24 0.52 0.51 0.61 0.77 0.94 1.21 1.31 1.46 1.76 1.86

EXPLANATION
This curve shows that the economy of switzerland is on peak level. The industry will also be on boom because in short term rate are low but enventualy in long term rates are increase and economy grew up.

LITERATUIRE REVIEW
There is no arbitrage term structure model this model is resulting in an ad-hoc mode and does not theoretically preclude arbitrage opportunity. (Nelson and Siegel 1987) Radically DNSM is not various from arbitrage-free ATSM. Even if performance forecast is not the primary objective of interest in the paper. (Coroneo, Nyholm and Vidova-Koleva 2008) It have been extensively studied in the financial literature both with respect to their theoretical underpinnings as well as to their predictive abilities. (Duffie and Kan 1996)

REFRENCE

Nelson, C.R., and A.F. Siegel (1987) Parsimonious modeling of yield curves. Journal Of Business 60, 47389

Coroneo, L., K. Nyholm, and R. Vidova-Koleva (2008) How arbitragefree is the Nelson-Siegel model? ECB Working Paper no 874

Duffie, D., and R. Kan (1996) A yield-factor model of interest rates. Mathematical Finance 6, 379406

CONCLUSION
As it has been told before in the explanation of yield curve that as the yield curve is upward sloping thats why there are more chance of investment in the economy and investors will without any hesitate invest that will help to create more and more funds which will lead to economic growth.