Exam 13: An Introduction to Interest Rate Determination and Forecasting

If investors are not indifferent to whether they hold long-term or short-term securities,and need a liquidity premium to hold longer term securities,an investor who needs a liquidity premium of 0.25% per annum will expect to receive _______ on a two-year investment,given the following data: (₀i₁)8.46% per annum (E₁i₁)8.55% per annum

Because long-term securities face greater risk of capital loss than do short-term securities,investors generally:

All else being equal,the demand curve for loanable funds may shift to the right (increase)as a result of:

If there is an excess supply of loanable funds at a given interest rate:

If the equilibrium interest rate in the market is estimated to be 6%,which of the following is likely to occur if rates increase to 7%?

The term 'loanable funds' refers to:

In the context of the loanable funds theory,discuss the sectors that have a demand for funds in relation to demand and supply curves.

Interest rates will fall when the demand curve for loanable funds:

In the textbook,real gross domestic product (GDP)is shown as:

If the current account of the balance of payments of a country is significantly in deficit,the central bank will generally lower interest rates in order to help borrowers with their interest rate costs.

At any time,the shape and slope of the yield curve is affected by:

The liquidity effect of expansionary monetary policy is likely to see interest rates fall in the first place but as the pace of economic activity increases the income effect is likely to result in a rise in the interest rates in the market.

Using the pure expectations approach to the determination of interest rates,calculate the expected (E)rate of interest of a two-year investment that will be available in 12 months' time (₁i₃),given the following data: Current rate of return on a one-year-to-maturity (₀i₁)instrument:7.75% per annum Current rate of return on a two-year maturity (₀i₂)instrument:8.25% per annum Current rate of return on a three-year maturity (₀i₃)instrument:8.65% per annum

Generally,an increase in default risk will result in a/an _______ required return or interest rate.

If the yields on short-term securities are higher than comparable long-term securities,the yield curve will be:

Define and discuss briefly the three common types of economic indicators.

In relation to economic indicators,a lagging indicator is:

According to the expectations theory of term structure,if market participants expect future short-term rates to be higher than current short-term rates,the yield curve will:

All other things being equal,a decrease in the demand for loanable funds:

The yield curve theory that hypothesises that investors prefer short-term securities because of the risk associated with longer term securities is the: