The Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) by 25 basis points to 2.50% on the 3rd of March 2020. The reduction in the OPR is intended to provide a more accommodative monetary environment to support the projected improvement in economic growth amid price stability. BNM will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth andinflation. The reduction in the OPR came largely in line with economists’ expectations. This is the second cut so far this year. In January, Bank Negara reduced the OPR by 25 basis points to 2.75%-- the lowest since 2011. Two years ago, Malayawata Steel issued RM 100 million worth of ten-year bonds with a face value of RM1,000.00 and a coupon rate of 5%. Coupon payments are made semi-annually. Two years ago, the market yield-to-maturity was 3% pa. Due to the increased insecurity facing the industry, the market yield to maturity is now 7% p.a Determine the market price of the bonds at issue based on an appropriate model.
Monetary Policy and Interest Rate
Monetary policy refers to the policy which is enforced by the central bank of the country to control the money supply and economic development of the country. The main aim of monetary policy is to manage inflation, consumption, and growth of the economy. The central bank influences interest rates to manage the money supply. In monetary policy, the central bank may revise the interest rate to increase and decrease the flow of money.
Development of the US Monetary System
The monetary system of a country refers to the system in which a government provides money in the economy of the country. In the modern-day monetary system, usually it contains the National Treasury, the mint where the notes are being printed. The Central bank and the commercial banks regulate the money supply in the economy of a country.
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Determine the market price of the bonds at issue based on an appropriate model.
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