The Sterling Interbank Money is the most volatile of all interest rate markets. The maturities traded in the UK interbank market range from overnight, severn days, 1,36 to 12 months. There are two unique features of this market and the second is the importance of the market is signalling monetary policy. The Bank of England actively interventes in the market as a controller and regulatory and uses it to adjust the liquidity position of the markets. In analysing the implication of this intervention, an expectation theory of interbank interest rates was tested and was found inadequate. The spatial structure of the term structure is very volatile and broken in nature. We model this structure using a non-linear pattern recognition learning network, which provides us with some interesting and robust results. The sucess of the model is modelling the term structure of intebank interest rates raises some important questions about expectations of market participants, efficacy of market intervention by the Bank of England, memroy effects and persistence shocks. We finally test for the efficiency of the model in identifying arbitrage possiblities in the proces sfinding a significant degree of accuracy in the arbitrage pattern as well as continuation pattern identification.
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