Real Interest Rates and Investment and Borrowing Strategy

(Hardback)

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Written by one of North America's foremost authorities on the subject, this is the first sustained treatment of the complex relationship between real interest rates and investment returns. Spiro focuses specifically on the problems of measuring and predicting real interest rates in order to optimize corporate investment and borrowing strategy. The book provides a wealth of practical advice in such key areas as choosing types of investment instruments, selecting the best term to maturity, and assessing the risks versus rewards of different types of bond instruments. Considering the complex subject, the book is surprisingly well written. Corporate financial officers, in particular, will want to read it. Journal of Accountancy Written by one of North America's foremost authorities on the subject, this is the first sustained treatment of the complex relationship between real interest rates and investment returns. The author focuses specifically on the problems of measuring and predicting real interest rates in order to optimize corporate investment and borrowing strategy. An invaluable decisionmaking tool for financial officers, treasurers, and portfolio managers, the book is written in clear, non-technical language and provides a wealth of practical advice in such key areas as choosing types of investment instruments, selecting the best term to maturity, and assessing the risks versus rewards of different types of bond instruments. Spiro bases his book on rigorous empirical research and relates new findings in financial economics to the on-the-job problems and uncertainties faced by corporate investment managers. He highlights research which indicates that even moderate rates of inflation can have a substantial negative effect on the real interest rate and provides detailed empirical estimates to help the reader predict the value of the real interest rate under varying conditions. Additional topics covered include the impact of real interest rate changes on stock prices, the effects of exchange rate risk on international fixed income investment and borrowing, and the effects of government debts and deficits on real interest rates. Taken together, the information offered here will enhance the financial professional's ability to predict important interest rate trends and therefore increase the quality of their investment and financial decisions.

Reviews

"Given the recent intense interest in the subject of government debt and interest rates, Spiro's little book merits careful study. Readers will be richly rewarded for their efforts."-Alan S. Blinder Professor of Economics, Princeton University
"I believe that your analysis of the effects of fiscal policy on interest rates is the most comprehensive to date on the subject. . . . The book will be extremely useful to economic researchers, business economists, and investors."-Kajal Lahiri Professor of Economics, State University of New York at Albany
"I think the work is an important contribution to corporate borrowing strategy, particularly in indicating the types of information that must be looked at in coming to decisions on timing. The discussion of the impact of government borrowing on interest rates is particularly interesting."-David A. Wyss Senior Vice President and Chief Financial Economist, Data Resources, Inc.
"It is a concise, effective treatment of the behavior of interest rates and the managerial implications of their movement. The book would be a good addition to the library of corporate treasurers and bank asset and liability treasurers."-Dennis E. Logue Stephen Roth Professor of Management Associate Dean for Research Dartmouth College
"The dramatic rise in both the level and the volatility of real interest rates is perhaps the most significant development in financial markets in recent years. Spiro's analysis of the determinants and the implications of these developments are thorough and insightful. His review of recent academic findings, with attention to their practical implications, is particularly successful."-James E. Pesando Professor of Economics and Director, Institute for Policy Analysis, University of Toronto
. . . Besides the many provocative and practical ideas already mentioned, Real Interest Rates and Investment and Borrowing Strategy contains a couple of bonuses. One chapter compares long term, fixed rate bonds with various inflation-beating alternatives, including a security that returns a constant real interest rate plus a principal payment that is indexed to the price level. Spiro also uses the real interest rate as a variable for predicting major movements in stock market indexes, arguing along the way that the equity market overreacts to short-run changes in rates. In view of Spiro's well-reasoned and far-ranging explorations, one hopes that a large portion of the investment management population will be inclined to acquire and pore over this illuminating book.-Financial Analysis Journal
Analyzes the problems of measuring and predicting real interest rates in order to help businesses choose optimal financial and investment strategies. Describes the historical trends of real interest rates and inflation and discusses the distinction between real and money rates of interest. Examines the effects of profit rates, government deficits, and inflation rates on real interest rates. Other topics covered include international interest-rate differentials and exchange rate risk, the use of financial instruments to cope with uncertainty about inflation, and methods of forecasting interest rates. Spiro is the head of the Economic Forecasts Section at Ontario Hydro, an electric utility.-Economic Books Current Selections
Provides a historical perspective on real interest volatility and inflation. Reviews some basic definitions and concepts related to real interest rates. Discusses real profit rates and monetary policy as determinants of interest rates. Explores the effects of government deficits on interest rates and the effect of inflation on short-term interest rates. Examines the effect of inflation on long-term bond yields and considers alternative financing instruments for coping with uncertainty about inflation. Discusses why the interest parity theorem does not work and provides some measurement of the risk of foreign lending. Proposes a model that relies mainly on economic variables to predict the stock market index. Concludes by outlining applications of the model in different approaches to forecasting. Spiro is Head of the Economic Forecasts Section at Ontario Hydro. Name and subject indexes.-Journal of Economic Literature
Written by Peter S. Spiro, this book is the first sustained treatment of the complex relationship between real interest rates and investment returns. . . . The hardcover book is written in clear nontechnical language and provides practical advice in such key areas as choosing types of investment instruments, selecting the best term to maturity, and assessing the risks versus rewards of different types of bond instruments. "In view of Spiro's well-reasoned and far -ranging explorations, one hopes that a large portion of the investment management population will be inclined to acquire and pore over this illuminating book.-Journal of Commercial Bank Lending Financial Analysts Journal
." . . Besides the many provocative and practical ideas already mentioned, Real Interest Rates and Investment and Borrowing Strategy contains a couple of bonuses. One chapter compares long term, fixed rate bonds with various inflation-beating alternatives, including a security that returns a constant real interest rate plus a principal payment that is indexed to the price level. Spiro also uses the real interest rate as a variable for predicting major movements in stock market indexes, arguing along the way that the equity market overreacts to short-run changes in rates. In view of Spiro's well-reasoned and far-ranging explorations, one hopes that a large portion of the investment management population will be inclined to acquire and pore over this illuminating book."-Financial Analysis Journal
"Analyzes the problems of measuring and predicting real interest rates in order to help businesses choose optimal financial and investment strategies. Describes the historical trends of real interest rates and inflation and discusses the distinction between real and money rates of interest. Examines the effects of profit rates, government deficits, and inflation rates on real interest rates. Other topics covered include international interest-rate differentials and exchange rate risk, the use of financial instruments to cope with uncertainty about inflation, and methods of forecasting interest rates. Spiro is the head of the Economic Forecasts Section at Ontario Hydro, an electric utility."-Economic Books Current Selections
"Written by Peter S. Spiro, this book is the first sustained treatment of the complex relationship between real interest rates and investment returns. . . . The hardcover book is written in clear nontechnical language and provides practical advice in such key areas as choosing types of investment instruments, selecting the best term to maturity, and assessing the risks versus rewards of different types of bond instruments. "In view of Spiro's well-reasoned and far -ranging explorations, one hopes that a large portion of the investment management population will be inclined to acquire and pore over this illuminating book."-Journal of Commercial Bank Lending Financial Analysts Journal
"Provides a historical perspective on real interest volatility and inflation. Reviews some basic definitions and concepts related to real interest rates. Discusses real profit rates and monetary policy as determinants of interest rates. Explores the effects of government deficits on interest rates and the effect of inflation on short-term interest rates. Examines the effect of inflation on long-term bond yields and considers alternative financing instruments for coping with uncertainty about inflation. Discusses why the interest parity theorem does not work and provides some measurement of the risk of foreign lending. Proposes a model that relies mainly on economic variables to predict the stock market index. Concludes by outlining applications of the model in different approaches to forecasting. Spiro is Head of the Economic Forecasts Section at Ontario Hydro. Name and subject indexes."-Journal of Economic Literature

Author Bio

PETER S. SPIRO is Head of the Economic Forecasts Section at Ontario Hydro, one of North America's largest electric utility companies. In this capacity, he provides advice regarding a large borrowing program and also the investments of the corporation's pension fund. He was Manager of Fixed Income Investments for a major international corporation's pension fund, and was a lecturer on economics at the University of Toronto. Spiro has specialized in the study of interest rates throughout his career, and his original research on the subject has been published in numerous professional periodicals.