The Cash Rate Is The Overnight Money Market Interest Rate...

The Cash Rate Is The Overnight Money Market Interest Rate...
The cash rate is the overnight money market interest rate implemented by the Reserve Bank of Australia. The Board of the Reserve Bank of Australia
meet monthly to determine the cash rate for the following month, taking into account various economic conditions, both globally and domestically.
Since August 2013, the cash rate in Australia has been at a record low, of 2.5 per cent (Reserve Bank of Australia, 2013). The three factors which will
be considered in determining the cash rate for October 2014 are; the housing market "boom", the falling value of the Australian dollar and iron ore
prices trading at an all time low. Based on these three factors, on the 4th of October, the cash rate should be kept at the current rate of 2.5 per cent.
With the latest inflation result showing inflation to be around the mid band target of the 2–3% target, no immediate cash rate decisions need to be made
to control inflation. The cash rate is closely related to the monetary policy. As the inflation target helps the RBA achieve its three objectives of
monetary policy, and the cash rate ultimately influences the level of inflation in the economy, the cash rate and monetary policy can be seen to be
closely related. The three objectives of monetary policy are; maintaining price stability, full employment and economic prosperity and welfare of the
Australian people (Reserve Bank of Australia, 2013). The objectives of monetary policy will also be covered in this essay and how the current will
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Homebuyer Interest Rate
The first mortgage option is a 15–year, fixed rate mortgage. This mortgage type maintains a steady interest rate for the fifteen–year term of the loan and
requires the homebuyer to make equal monthly payments until the loan is amortized (Zillow.com, n.d.[b]). Because the term of this loan is short, the
monthly mortgage payment will be higher than with a longer–term loan as the principal must be paid off in a shorter amount of time. The interest rate
associated with a mortgage varies by lending institution, homebuyer's credit score, loan term, location of home, among other variables (Geffner, 2009).
For the purposes of this analysis, we will assume that the homebuyer has qualified for Bank of America's 15–year, fixed rate mortgage interest rate ...
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With an initial interest rate of 3.5%, a homebuyer's monthly principal/interest payment during the first ten years is $772.36. The actual monthly
payment will be, as with the 15–year fixed rate mortgage, increased by the monthly escrow payments of homeowner's insurance and property taxes–
making the actual monthly payment during the first ten years $1,246.36. Under the assumption that the interest rate would increase by 0.1% every year
after the initial 10–year period, the homebuyer's principal/interest payment increases from the aforementioned $772.36, to $850.15, with their total
monthly payment increasing from $1,246.36 to $1,324.21. Again, the proportion of the principal/interest payment directed towards interest charges is
the periodic interest rate of the period multiplied by the previous month's ending principal balance. The remainder of the principal/interest payment is
then applied to the principal balance. Under the given terms, the homebuyer will have paid an initial $43,000 down payment, $172,000 in principal
payments and $118,539.50 in interest charges for a total expenditure on a $215,000 listed home of

Major Determinants of Interest Rates
Major Determinants of Interest Rates
Inflation
Inflation is a factor that decisively affects the nature or outcome of interest rates. "Inflation is an increase in prices of goods and services over
time"(Financial Institutions, Instruments and Markets, 2012). Inflation is the natural byproduct of a robust, growing economy. No inflation, or deflation
(the lowering of prices), is actually a much worse economic indicator. Also, in a healthy economy, wages rise at the same rate as prices. A standard
explanation for the cause of inflation is "too much money chasing too few goods" This is also called the demand–pull theory. For several possible
reasons, more money is being spent than normal. This could be because interest rates are low and ... Show more content on Helpwriting.net ...
In other words, the rate at which one currency can be exchanged for another" (Investopedia, 2012). Exchange rates play a fundamental role in
Australia's level of trade. Exchange rates are among the most watched, analysed and governmentally manipulated economic measures, but exchange
rates matter on a smaller scale as well because an example being they impact the real return of an investor's portfolio (Investopedia, 2012).
Exchange rates and interest rates, as well as inflation, are all interconnected. "Higher interest rates offer lenders, such as Australia's four big banks;
ANZ, NAB, Commonwealth and Westpac, a higher return compared to other countries...however lower interest rates tend to decrease exchange
rates" (Investopedia, 2012). Australia's exchange rates are published daily except on public and bank holidays by the Reserve Bank of Australia
(RBA). The table below shows the exchange rates for the 13th, 14th and 17th of September 2012 (RBA website). Units of foreign currency per A$
(Reserve Bank of Australia)| | 13th September 2012| 14th September 2012| 17th September 2012| United States Dollar| 1.0471| 1.0579| 1.0534|
European Euro| 0.8102| 0.8115| 0.8022| Chinese Renminbi| 6.6291| 6.6835| 6.6530| Japanese Yen| 81.37| 82.06| 82.47| United Kingdom Pound| 0.6498|
0.6531| 0.6493| Indian Rupee| 58.07| 57.85| 56.75| Thailand Baht| 32.48| 32.55| 32.43|
|
'Interest

Interest and Risk-free Rate
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Assignment 9
The due date for this quiz is Mon 16 Sep 2013 6:30 PM IST (UTC +0530).
Please read all questions ... Show more content on Helpwriting.net ...
Alpha, Inc., has debt that is viewed by the market as risk–less with a market value of $500 million. Beta, Inc., has no debt. Both firms are expected to
generate cash flows of $100 million per year for the foreseeable future and the market value of the equity of Beta, Inc is $1 billion. Estimate the return
on equity of Alpha, Inc. Assume there are no taxes, and the risk–free rate is 5%. (No more than two decimals in the percentage interest rate, but do not
enter the % sign.)
Answer for Question 7
Question 8

(10 points) Mango, Inc. has had debt with market value of $1 million that has paid a 6% coupon and has had an expiration date that is far, far away.
The expected annual earnings before interest and taxes for the firm are $2 million and the firm has not grown, nor does it have plans for any growth.
The firm however has just raised more equity to retire all its debt. If the required rate of return to equity–holders (after the capital structure change) is
now 20%, what is the market value of the firm? Assume there are no taxes. (Enter just the number without the $ sign or a comma; round to the nearest
whole dollar.)
Answer for Question 8
Question 9
(15 points) Suppose all investors are risk–averse and hold diversified portfolios. You are evaluating a new drug company that is going to have two
divisions: an R&D unit and a Sales unit. Your CEO and you are arguing about whether the two units should have the same cost

Regulating Interest Rates as a Solution to the Recession...
Today's financial crisis has deeply impacted all areas of life not only in the United States, but also the rest of the world. Company giants such as
Circuit CityВ® and Merrill LynchВ® have fallen victim to the financial crisis. One of the biggest industries the financial crisis has had an impact on
has been the housing market. Everyday newspapers, journal articles, and television media cover stories regarding foreclosures around the country. To
regain financial control of the world and domestic economy, one must begin with the housing market. There are various areas of the housing market,
which allow for overhaul and maintain a prosperous future. Regulating bank interest rates and federal interest rates will reduce, if not eliminate the ...
By repaying their debt, this helps the banking industry, which in turn strengthens the economy. This is a win–win situation because everyone benefits
from it: the consumer improves his or her credit worthiness in order to purchase a home at a later time, the banking industry does not lose out on loaned
money in either the short or long term, and home buyers will be able to enter an agreement with the lender knowing beforehand that their interest rate
will not rise at any point, thus making it affordable. For people who are currently in an ARM, the banking industry should allow them to transfer to a
fixed–rate loan that allows affordability to the consumer without jeopardizing loss of money on the banking industry. The banking industry should
also be flexible regarding requests by its home owners. Some people are beginning to realize ahead of time that eventually they will not able to
afford the house they are living in. One solution might be to allow the flexibility such as lowering payments for a specified amount of time such as
one or two years. Affordability is the main idea to a homeowner. If amortgage is affordable, most likely a homeowner will continue to make his or her
payments on time and not foreclose on the home.
For example, if a person is paying $1,000 per month in mortgage and is not able to afford this amount, by allowing them to reduce their payments to
$800 on a two–year agreement, the bank will temporarily lose

External influences Economy Interest rates Most...
External influences Economy Interest rates Most businesses will need to borrow money. The interest rate will affect how much it costs.
External influences
Economy
Interest rates
Most businesses will need to borrow money. The interest rate will affect how much it costs a business to borrow money. If the interest rate is high the
money a business owes is more than before. A 20% interest rate rise would affect Cadbury's; they would have to pay extra money towards the loan.
This too would affect Sainsbury's in the same way. Any interestrates that go up will affect a business because the business needs to make up the costs
and the only way to do this is to higher the prices of their service or products. The company might ... Show more content on Helpwriting.net ...
If they did lower their prices they would loose money anyway so it is a hard move for the other stores. Cadburys could update products such as dairy
milk. Or they could change the packet and make it more flashy or different. E.G
Sainsbury's could sell healthier foods like their 'be good to yourself' range. This is very successful because Jamie Oliver is advertising and when he
says it's good it is good. Vouchers for active kids will make people buy their products. Nectar points will make people buy the products too because
people will spend money and save money at the same time.
The Environment
The environment can be a big factor in the running of a business because if they do anything to affect the environment they will get loads of
environmental protesters trying to close down the factory or trying to ban the product. If Cadburys were to produce too much pollution they would
be greatly concentrated on and their reputation would be lost. In their case they would loose a lot of money because they only sell edible products
so they would be closed down, [IMAGE]but if Sainsbury's got accused of polluting too much they could do a whole range of things because they
don't just sell edible foods and they don't make the food in their own shop (except for bread and fish).
Cadbury have a website to promote the environment friendly use of materials and it

Interest Rates And Its Impact On Financial And Saving...
Interest rates are essential regarding financial and saving money divisions, they focus key variables and choices that are going to be made inside banks,
so exhorting what are premium rates and characterizing them are vital. Interest rates is the rate which is charged to the individuals when getting cash
from the bank, whether it might be taking out an advance or home loan on the other hand, there are two sides to it and it can likewise be the prize of
sparing your cash and putting your cash into ISA records and putting resources into securities for instance. In the UK, the general interest rate is at
present 0.5% however this can differ as distinctive banks and monetary organization loan specialists can have diverse terms and conditions, it
additionally relies on upon specific people financial record and different components like pay.
As a matter of first importance, lets begin off by expressing what the money market is comprised of and this is comprised of cash and bond, at the
end of the day the conduct of central banks and private parts monetary establishments. There are both positives and negatives for individuals holding
their cash in both of the two. For instance, in the private segment you put in your cash into securities in this way there is a plausibility of profiting
through premium however then again, this is seen as a danger if the rate falls and you'll a percentage loose your money. Additionally, because of in the
event that you hold cash in a settled rate

Interest Rates and Other Critical Determinants of...
Interest Rates and Other Critical Determinants of Investment Spending in Bangladesh
Background
Investment, which is a spending devoted to enhancing or maintaining the existing stock of capital in the economy provides goods and services
necessary for better standard of living. Moreover, it has greater importance as a policy tool. Policymakers often try to achieve target growth in GDP by
influencing the level of investment. They do so by undertaking policies that influence the rate of interests. The underlying assumption is that
investment is negatively related with the rate of investment.
Historically, economic theories have suggested negative relationship between investment and interest rates. Changes in either nominal or real ... Show
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To investigate the impact of interest rates on investment spending, we use a simple regression function for the two variables but add several slightly
different variables. The starting point of model formulation is;
I= f (LR, SR, S, Y, ER)В…В…В…В…В…В…В…В…В…В…В…В…В… (1)
Where, I = Investment LR= Interest rate on loans SR= Interest rate on savings S= Gross Domestic Savings Y= GDP ER= Exchange rate
Investment is not a function of interest rate alone. Factors like income, savings, and saving rate along with lending rate are important issues in setting
the level of investment. That is why we need to incorporate all of them in the regression function and test the marginal impact of each of them on
investment.
Accordingly, the estimating equation used in this study is;
where, the term e is the stochastic error term that captures the impact of all other variables not included in the model.
Model Validation

The coefficient , which gives the change in investment due to one unit change in lending rate is expected to be negative. Other slope coefficients ( are
expected to have positive values since their associated variables, interest on savings, savings, and income respectively should influence investment
positively. The coefficient can take positive or negative values depending on how a rising trend in exchange rates influence the level of domestic
saving. The expected impact is determined by the

What Are The Differences And Similarities Between FX And...
Swap
Q1: Where did the swap market originate? And why?
The earliest SWAP market originated in the United Kingdom in the 1970s. The main purpose of this market is to circumvent the foreign exchange
controls adopted by the British government. The first swap is a change in the currency swap. The British government taxes foreign exchange
transactions involving sterling. This makes it more difficult for capital to leave the country, thereby increasing domestic investment.
Q2: Why Swaps are so popular? What is their economic rationale?
Interchanges help to limit or manage the volatility of interest rates, and swap yields lower interest rates than would have been available to the company.
Swaps are used because domestic companies usually get better ... Show more content on Helpwriting.net ...
Interest rate swaps include the exchange of interest payments, while currency swaps include the exchange of the same amount of cash in one currency.
Interest rate swaps are financial derivative contracts where both parties agree to exchange interest rate cash flows
Q8: What is the combination of FX and interest rate swap called? How many swap types can you construct by mixing the basic flavors?
The combination of FX and interest rate swaps is called CIRCUS. In terms of their magnitude importance, the five common types of swaps are:
interest rate swaps, currency swaps, credit swaps, commodity swaps and stock swaps. There are many other types of swaps
Q9: Swaps are important risk management tools. How would you use swaps in the following situations (give an example and describe the swap type)
For example, consider an ordinary fixed interest rate floating interest rate swap, Party A pay a fixed rate, Party B pay a floating rate. In such an
agreement, the fixed interest rate should be such that the present value of the future fixed interest rate paid by Party A is equal to the present value (ie,
the net present value is zero) paid by the expected future variable interest rate. If this is not the case, then arbitrator C

Interest Rate Pass-Through and Monetary Transmission in...
Interest Rate Pass–Through and Monetary Transmission in Asia and European countries
пЃ¬Introduction
After the financial crisis happened in 1997, many economies are interested in evaluating the performance of monetary policy in softening inflation,
affecting investment and other economic indicators. Central banks lowered the policy rate to nearly zero so as to ease the intense economic situation
(Meaning and Zhu (2011)). Interest rate pass–though can be defined as the degree and the speed of monetary policy rate into retail banking rate. In order
to stable the price level, central banks have to know well about to what extend the interest rate mechanism amends inflation. More precisely, it is
essential to estimate whether the transmission from the government policy rate to retail rates is complete. The reason is simple: retail banking rates
can be viewed as a indicator that has impact on real economy because it can affect the demand and supply of loans and deposit. The higher the interest
rate pass–though, the closer link between monetary policy rate and retail rates, which means the retail banking rates can react quickly, that also
provides an effective interest rate channel. An incomplete interest rate pass–through can lead to the invalidation of the Taylor rule (Marotta, 2009).
This can be indicated from a rough indicator, lending spreads, (i.e, the difference between lending and policy rates). Early studies on the transmission
mechanism of monetary policy
Assumed the

The Effects Of Lowering And Raising Interest Rates
introduction this report is going to discuss the money market and how interest rates are determined, it will then look at the effects of lowering and
raising interest rates and the limitations of these effects. the money market is a section of the financial market where short term loans and financial
instruments are traded, for example these could be short term loans between banks with the debt maturing in less than a year.
"This gives banks, lenders and other borrowers the ability to satisfy their short term financial needs."
Finance & Development, June 2012, Vol. 49, No. 2, Randall Dodd
Explaining how interest rates are determined by the money market once the government has set targets and objectives, it is up to the policy makers to
use the tools available in order to meet these objectives. these levers are made up using fiscal and monetary policy tools. The tools used in the fiscal
policy is the use of taxation in order to control public spending, which can affect aggregate demand. When taxes are lower individuals and business
will be able to keep more of what they earn, causing better cash flow in the economy and increasing consumer spending ans confidence. This will
also be more of an incentive for individuals to seek work including workers from other countries in the EU, as they can keep more of what they earn as
take–home pay, this will cause a rise in employment, improving the efficiency of the country. When taxes are high this will generally work in the
opposite

Term Structure of Interest Rate
WITH REFERENCE TO THE UK EXPLAIN THE CONCEPT OF THE TERM STRUCTURE OF INTEREST? WHAT INFLUENCE DOES THE
BANK OF ENGLAND HAVE OVER THE TERM STRUCTURE AND WHY IS IT IMPORTANT FOR MONETARY POLICY
To understand the term structure of interest rate we need to elaborate how interest rates function and how they are determined. Interest rates are a vital
tool to all the macro–economic policy objectives of a government such as control of inflation, investment as well as employment. Interest rates refer to
the price paid by deficit agents for borrowing funds from the surplus agents. A line that plotsinterest rate at a set point in time is the term structure or
yield curve.
Interest rates which may be short term or long term are linked to a ... Show more content on Helpwriting.net ...
This particular curve is unusual as it is inverted. The market is anticipating a fall in rates and hence the shape of the yield curves. The sensitivity of
such a curve can be explained taking into account that the change in the rates reflected is small, 0.24% over the duration of the security, 30 years. This
is quite relevant when speculating on future economic conditions. (www.bankofengland.co.uk)
There are three main theories which relate to yield curves. The pure expectations theory implies that forward rates are unbiased estimators of future
interest rates. This theory states that the term structure of interest rates reflects the views of the market about the path of future short term interest
rates. Thus when explaining a positive yield curve, the market will be expecting short term interest rates to rise in the future. The opposite applies when
the curve is negative and when flat the markets expect short term interest rates to remain approximately the same. This theory generally over –estimate
interest rates and does not assume that investors are risk averse and want a higher return when investing.
The liquidity preference theory states that bond holders are risk averse and wish to be compensated for holding the long term security by a liquidity
premium. The normal yield curve to explain this should be up sloping indicating preference for liquidity by investors and lower risk of shorter term

Interest Rates : The Core Of The Monetary Policy
Interest rates are considered to be the core of the monetary policy set by economists and policy makers and that is applied by central banks to achieve
certain economic objects regarding measures like inflation and output. In other words, interest rates are just means to influence dimensions of
macroeconomic activity and central banks usually do not have any inherent preference for one interest rate level versus another. Empirical literature has
revealed that changes in the supply of bank reserves are what induce changes in the interest rates set by the central bank which affect changes in other
market–determined short–term interest rates as a result. However, changes in the Federal Reserve policy in the 1990s resulted in different findings.
The effect of the change of bank reserves on interest rates started becoming smaller over time; small enough that it was impossible to distinguish it
from the normal day–to–day variation in reserve supply needed to offset fluctuations in float, or Treasury balances, or other non–policy factors that
usually affect banks' reserve demand (Friedman & Kuttner, 4). For this reason, Benjamin Friedman and Kenneth Kuttner aim to provide a better
framework of understanding how central banks set interest rates that does not present the policy interest rate as a primitive one rather one that is more
consistent with contemporary monetary policy and that does not center only on the changes in reserve supply against an interest–elastic reserve demand.

Interest Rate Risk Analysis Case Study : Brac Bank
Table of Content
1. Executive summaryiv 2. Introduction2 3. Repricing Model2 I) Refunding or funding gap3 II) Advantage/Disadvantage4–5 4. Maturity Model6–10 5.
Weakness of maturity model11 6. Duration Model12–15 7. Limitation of Duration model15 8. Case Study –Brac Bank Ltd16–20
INTRODUCTION:
Interest Rate Risk – In the process of FIs performing their asset–transformation function, FIs are exposed to Interest Rate Risk, from Mismatched
Maturity/Duration: Borrowing Short, Lending Long. The risk that an investment 's value will change due to a change in the absolute level of interest
rates, in the ... Show more content on Helpwriting.net ...
в—† Changes proportional to CGAP assuming no spread effect
Unequal Changes in Rates:
в—† If changes in rates on RSAs and RSLs are not equal, the spread changes. In this case, (NII = (RSA Г— ( RRSA ) – (RSL Г— ( RRSL )
в—† Spread effect: the effect a change in the spread between the rates on RSAs and RSLs has on net interest income as interest rate changes.
Advantages of Repricing Model:
Easy to understand, easy to work with, easy to forecast changes in profitability from interest rate changes.
Disadvantages/Limitations of Repricing Model: 1. Does not account for balance sheet changes in the market value (PVA and PVL) of the bank when
interest rates change, so is only a partial model of interest rate risk.
2. Within a given time period (bucket), e.g. 1–5 years, the dollar values of RSAs and RSLs may be equal (indicating no interest rate risk), but the
assets may be repriced early, and the liabilities repriced late, within the bucket time period, exposing the FI to interest rate risk not accurately captured

by the Repricing Model. "Ignores CF patterns within a maturity bucket," e.g. one–year ARM rates might be re–set on a different date than the maturity
patterns of 1 year CDs.
3. Assumes NO prepayment of RSAs or RSLs, when there can actually be a high volume of

Composition of Interest Rates
Composition of interest rates
In economics, interest is considered the price of money, therefore, it is also subject to distortions due to inflation. The nominal interest rate, which
refers to the price before adjustment to inflation, is the one visible to the consumer (i.e., the interest tagged in a loan contract, credit card statement,
etc). Nominal interest is composed by the real interest rate plus inflation, among other factors. A simple formula for the nominal interest is: i = r + ПЂ
Where i is the nominal interest, r is the real interest and ПЂ is inflation.
This formula attempts to measure the value of the interest in units of stable purchasing power. However, if this statement was true, it would imply at
least two ... Show more content on Helpwriting.net ...
The risks of an individual debt may have a large standard deviation of possibilities. The lender may want to cover his maximum risk. But lenders with
portfolios of debt can lower the risk premium to cover just the most probable outcome.
Deferred consumption: Charging interest equal only to inflation will leave the lender with the same purchasing power, but he would prefer his own
consumption NOW rather than later. There will be an interest premium of the delay. See the discussion attime value of money. He may not want to
consume, but instead would invest in another product. The possible return he could realize in competing investments will determine what interest he
charges.
Length of time: Time has two effects. Shorter terms have less risk of default and inflation because the near future is easier to predict. Broadly
speaking, if interest rates increase, then investment decreases due to the higher cost of borrowing (all else being equal).
Interest rates are generally determined by the market, but government intervention – usually by a central bank– may strongly influence short–term
interest rates, and is used as the main tool of monetary policy. The central bank offers to buy or sell money at the desired rate and, due to their control
of certain tools (such as, in many countries, the ability to print money) they are able to influence overall market interest rates.
Investment can change rapidly to

how appreciation affects interest rates and exchange rates
1.Explain the how appreciation affects interest rates and exchange rates. How does this influence commodity currency? Should we return to a gold
standard? Why or why not?
Business dictionary defines an exchange rate as the rate at which one currency can be exchanged for another. In other words, it is the value of
another country's currency compared to that of your own. If you are planning a trip to travel abroad this is something that needs to be calculated
along the trip, because in order to purchase goods or services while aboard one would need to "purchase" the local currency. Just like the price of any
asset, the exchange rate is the price at which you can buy that currency. If you are traveling within Europe, for example, and ... Show more content on
Helpwriting.net ...
For instance, if the dollar depreciates relative to the euro, the exchange rate rises. When the dollar depreciates relative to the euro, the dollar
becomes more competitive because the price of American goods when exchanged to euro will be cheaper leading to a larger American export. On
the other hand, European countries that denominate its goods and services in Euros will have lost competitiveness to the dollar. The price of
European products will thus become more expensive in America. A currency appreciates as a result of increased demand for that currency on world
markets. Its value in the world market increases. This increase in demand can occur for several reasons which include: When a country's exports are
high, the buyers of these exports need its currency to pay for those exports. Also when the country's central bank increases interest rates, people will
want that currency to deposit in the banks to earn that higher interest rate. The higher the interest rate the stronger the currency.
Gold standard Between 1870 and 1914, there was a global fixed exchange rate. Currencies were linked to gold, meaning that the value of a local
currency was fixed at a set exchange rate to gold ounces. This was known as the gold standard. This allowed for unrestricted capital mobility as well
as global stability in currencies and trade. However, with the start of World War I, the gold standard was abandoned. To help combat the Great
Depression, faced

Payday Loan Interest Rates
The truth about payday loan interest rates
Nowadays, many people ask for the help of a payday loan company in order to solve their temporary financial troubles. As appealing as such
companies tend to be at the beginning, you will soon realize that the truth is far from what you are initially make to believe about getting a payday loan.
One of the main traps that are hidden behind the attractive appearance of payday loan companies refers to the interest rates, which are much higher
than you would expect.
Another big trap that such companies use is the debt vicious circle. Payday loan companies allow you – or even encourage you to – rollover your debt.
This means that if you don't afford to pay back the amount you already owe, you are allowed to roll over your debt for another time, but you will be ...
Although many people try to avoid getting a payday loan, there sometimes appear such desperate situations when you don't afford to pay your bills or
buy food before your next paycheck and so you need to borrow money. In emergency cases, a payday loan might seem very attractive and hence people
tend to forget to look out for hidden costs.
The dangers behind payday loans
One of the greatest dangers involved in payday loans is getting trapped in the endless cycle of asking for a loan after another. The repay period for
such a loan is usually short, as it is set for the next pay day, so that it is usually about two weeks. However, the interest rates that apply to such a loan
are very high and so it can become difficult for you to repay the entire amount you owe.
For example, if your payday loan is for $100 and you need to repay it within two weeks, the coast of the initial loan is a $15 charge, with an annual
percentage rate of 391%. In case you roll–over this loan for three times, the finance charge would increase to $60 for the same amount of $100

Correlation Between Interest And Rate Rates
In economics, a puzzle occurs when empirical data does not match the expected outcome that theory would predict. One such puzzle is the uncovered
interest rate parity, also known as UIP. This specific puzzle is about interest rate differentials and exchange rate fluctuations, and how the empirical
findings do not support the theory behind them. In order to further understand this vast research has been conducted on this puzzle in order to attempt
to explain why it is occurring. The reason why there is a desire to understand why this is occurring is because one of the foundations of corporate
finance is that no arbitrage opportunities are present, but here we see what appears to be one. However, let us first explain what theory says should ...
Now looking at several case studies the first being Adrian W. Throop. In his model, he runs four regressions where fluctuations inexchange rate
between the dollar and other major currencies are the dependent variables: Trade–Weighted US$, Yen/US$, Mark/US$, and Pound/US$. As for the
independent we see the focus on the interest rate change in the domestic and foreign market. He includes a great deal of other information in how he
acquires what he calls the real interest rate, and thus account for shocks in the market. This is done to test the hypothesis that sticky price model of
exchange rates can explain why this puzzle is occurring with interest rate and exchange rate of foreign currency. Whereas, the null hypothesis is that
sticky price model of exchange rates cannot explain why the puzzle is occurring. In conclusion, Throop found that although the sticky model made
sense theoretically when put to the test empirically it fell short and was not able to adequately account for the UIP puzzle. Now looking at Alfred V.
Guender and his article on UIP he also uses a regression to test the UIP puzzle, however, he believes that the conventional test equation of the UIP
hypothesis is plagued by omitted variable bias (Guender, 2014). As such he hypothesis there is an inverse relationship between the exchange rate
change and the lagged interest rate differential, and he also takes into account variables that are typically omitted, but do have an impact on the model
such

Essay on Debatable Topics in Microcredit: Interest Rates
The most debatable topic in microcredit has always been interest rates, especially that prices paid by low–income clients tend to be higher than
conventional banks' rates, and interest rates for some MFIs have exceeded annual rate of 100 percent on effective basis. In Egypt, microcredit rates
are increasingly being criticized and viewed as unreasonably high, while it is immoral to set high prices on the poor. At least once a year, an article
must be found in an Egyptian newspaper urging for the need to create "a bank for the poor". Driven by religious perspective and long history of
subsidized policies, the longing for a bank for the poor in Egypt have always been spinning around the idea of providing credit to low–income
households ... Show more content on Helpwriting.net ...
2011). Supporters of commercial microcredit claim that microcredit clients' major priority is the accessibility to finance rather than its costs, Porteous
(2006), claims that the main priority for microcredit clients is the structure of the loan rather than its price, what really matters is the loan size, type of
the loan and disbursement timing and procedures. This claim is usually supported by steady demand on microcredit regardless of the charged rates, and
mainstreaming about high rate of return for micro–enterprises.
Gobezie, (2004) and Cull, et al (2007) estimate high rate of return to invested capital for those with low capital and who are facing capital constraints.
Accordingly, poor households would still have a sufficient income even with high effectiveinterest rates. Goldstein, & Udry, (1999) and Bidwell,
(2009), found similar results for small scale farmers. While on the contrary, many studies observed clear evidence for the sensitivity of the demand for
microcredit to interest rate greater than wealthier borrowers (Dehejia et al. 2005, Annim, 2011 and Karlan, & Zinman 2008).
Hashemi, & Rosenberg, (2006) explained that microcredit high rates are rational, associated with high risks, lack of guarantees and challenges of
continually providing non–financial services. While according to Morduch, (2000), high rates are caused by high inelastic demand for credit among
populations where financial services are limited. On the basis of cost per

Nominal Interest Rates
Nominal Interest Rates vs. Real Interest Rates Assume we purchase a 1 year bond for face esteem that pays 6% toward the end of the year. We
pay $100 toward the start of the year and get $106 toward the end of the year. In this manner the security pays a loan fee of 6%. This 6% is the
ostensible loan cost, as we have not represented swelling. At whatever point individuals discuss the loan cost they're discussing the ostensible
financing cost, unless they state generally. Presently assume the swelling rate is 3% for that year. We can purchase a wicker container of products
today and it will cost $100, or we can purchase that crate one year from now and it will cost $103. On the off chance that we purchase the security
with a 6% ostensible... Show more content on Helpwriting.net ...
The contrast between Nominal GDP and Real GDP is utilized to gauge swelling in a measurement called The GDP Deflator. Nominal Wages vs.
Real Wages These work similarly as the ostensible financing cost. So if your ostensible compensation is $50,000 in 2002 and $55,000 in 2003, yet
the value level has ascended by 12%, then your $55,000 in 2003 purchases what $49,107 would have in 2002, so your genuine pay has gone done.
You can compute a genuine compensation as far as some base year by the accompanying––Real Wage = Nominal Wage / 1 + % Increase in Prices
Since Base

Notes On Vanilla Interest Rate Swaps
Introduction
VANILLA INTEREST RATE SWAPS
It is estimated that about 75% of American companies use derivatives. The main risk remains that most companies do not monitor their position
frequently (Operational) and only few really understand the instruments (Intellectual). Moreover, as an off–balance–sheet item it reduces the public
awareness of such items (accounting). This is the first case that there was a ruling by a judge for derivative instruments. P&G had to pay only $35
million out of the $175 expected losses.
P&G, a leader in cosmetics, infant products, and grocery industries, offered almost 250 products to 5 billion consumers in 130 countries (Procter &
Gamble, Form 10–K 2–3 (1998)).
Liquidating the two contracts cost the company $157 million which is one of the largest losses incurred for an American company. In comparison ,
Metallgesellschaft AG lost 1.36 billion in oil futures. The downside risks involved in these contracts are not fully understood, even by sophisticated
investors.
Chronology
August 1993: As the maturity of an interest rate swap approached what P&G had paid, that is an interest rate approximately equal to CP Federal Funds
Rate – 0.40%, P&G relied on BT for a swap contract replacing the interest rate swap in order to maintain BT's financing structure. Although BT
proposed a swap contract similar to the previous swap structure, P&G refused on account of its inconsistency with P&G's risk factors. (Jongho Kim,
"Lesson From Modern Debacles".)

How Can Interest Rates Go Lower Than Zero?
After years of quantitative easing, many of the world's leading economies have begun to transition away from near zero interest rates. In December
2015, the Federal Reserve announced they would be raising interest rates and followed through in January 2016. Raising interest rates indicate to the
world that economic growth is stabilizing and avoids inflating a bubble of cheap credit. While it was only a matter of time before the United States
raised interest rates, some experts believe this hike was premature. The interest rate hike, amongst many other factors, is often pointed to when trying
to explain the volatility that has shaken the global economy over these early weeks of 2016. Consequently, some economists are insisting the Fed
should have moved interest rates down instead of up. Conventional wisdom would ask, "how can interest rates go lower than zero?", but in this day in
age, some economies are beginning to experiment with negative interest rates.
Negative Interest Rates
Following the 2008 Financial Crisis, economies around the world enacted quantitative easing to effectively lower interest rates while also producing
inflation. Theoretically low interest rates aim to stimulate the economy by promoting consumer spending and borrowing over savings. Consumers can
borrow at such low costs that purchasing everything on credit becomes more attractive than buying it outright. Typically in a low interest rate
environment, consumers will purchase new homes, automobiles or

The Pros And Cons Of Interest Rates
According to Mallins(2004) interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of
assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR).The assets borrowed could include, cash,
consumer goods, large assets, such as a vehicle or building. Interest is essentially a rental, or leasing charge to the borrower, for the asset's use. In the
case of a large asset, like a vehicle or building, the interest rate is sometimes known as the lease rate. When the borrower is a low–risk party, they will
usually be charged a low interest rate; if the borrower is considered high risk, the interest rate that they are charged will be higher. Interest is charged
by lenders as compensation for the loss of the asset's use. In the case of lending money, the ... Show more content on Helpwriting.net ...
During periods of high interest rates, businesses earn more from these investments. When rates are low, businesses may be more likely to use their cash
for new equipment and plant improvements. While this can be good for equipment sellers and construction firms, banks lose out. Banks make their
money from providing loans. When they don't get business investments to boost their assets, they can't make as much money because they have less to
loan out. The interest rates banks charge are their income after expenses. When banks don't see an opportunity to make a reasonably–high interest rate
on their money, they become less likely to take risks on loans. Businesses therefore can't borrow money for start–up and expansion expenses. Business
can slow down to a crawl because there's no way to fund innovation. In addition, short–term loans to cover cash–flow problems can be hard to come by.
This could cause businesses to be unable to deliver goods and services to their customers because they don't have the cash to continue operating(Owoh,

Is It Better For Fix Or Float Interest Rates On The...
Is it better to fix or float interest rates in the current economic environment? This is the question now facing Marcus Garvey who is planning to buy
his first home in October of this year. Making the right decision on whether to fix or float interest rates on a mortgage and for what period could be
the difference of thousands paid to the bank in additional interest. To assist Marcus in this decision, this essay has looked at many variables. Firstly, and
most importantly, what interest rates are expected to do in the short term future? Secondly, what are the advantages and disadvantages of both fixed
and floating loans and how these will affect Marcus based on the information we know about him. We also look at the unknowns' of Marcus's
situation that may lead to an alteration in recommendation. Thirdly we will look at how long of a fixed period would be recommended to have the
most economic benefit for Marcus if he decides to go with this option. Based on the information given on Marcus, and what we have learnt about the
current environment, it is decided to recommend that Marcus either fix his whole mortgage, or fix the majority while leaving a small portion floating.
There are many variables that must be considered when deciding to fix or float and not knowing Marcus' situation in relation to these variables, this
would be the safest option.
Sorted.org.nz defines a fixed rate as a loan where the interest rate is set at the date you take out your loan and remains the same

Discuss the Extent to Which a Reduction in the Rate of...
The definition of consumer expenditure is the amount of money spent by households in an economy. The definition of investment is the spending by
firms on capital good such as new machines etc. Finally the definition of interest rates is the proportion of a loan that is charged as interest to the
borrower, normally expressed as an annual percentage. In the UK the interest rates are set by the Monetary Policy Committee and are usually used in
order to influence levels of aggregate demand. Primarily, you must understand that lowering the rate of interest will make it cheaper for people to
borrow as well as make it cheaper to pay back existing loans. As a result, firms may use this money that they have saved to spend on upgrading the ...
Furthermore, if the interest rate was low before the cut then it may not appear to have a very big impact because people will have already have been
taking advantage of the small cost of borrowing. Obviously if the interest rate was very high discouraging people from borrowing and in turn
reducing consumer expenditure and investment by firms, then a rapid cut could see a high rise in the aggregate demand. Moreover, if someone is in
the middle of paying back a mortgage on something like a house and interest rates fall they will effectively have more money because they will not be
paying more on top of their mortgage on interest.
On the other hand, the reasons for increases of consumer expenditure and investment levels as mentioned above are only all valid if ceteris paribus
is assumed. In reality, both factors of aggregate demand can be affected by multiple other external factors for example, consumer expenditure can be
affected by the marginal prosperity to consume amongst consumers and therefore if this is very low then a cut in interest will see a minimal change
in consumption and investment levels. In terms of consumers and firms if a large cut were to occur it would have a far superior effect in comparison
to a small cut which could potentially have no impact. As well as this it can also be affected by the Income Elasticity ofDemand this means the
responsiveness of the demand for a good to a change in

Should Interest Rates Be Low Today?
7.2 million boomerang buyers are renting homes because they don't feel they are qualified to own homes of their own. They otherwise have good
credit history and can purchase through these available options. Rent with Option to Buy With a "rent with option to buy" situation, the gap in time
between setting up the contract and actually buying the house, it appears based on research that lenders fear that their buyer will be locked into a
condition that may not suit them in the future. Interest rates may be low today but locking into the current rate could keep them from benefiting from
an even lower rate in the future, or they could lose the money they set aside if they do not follow through on their contract to buy. One would think that
the buyer could lock into a current market purchase price with this option but to the contrary, it seems that the owner wins on this detail as well,
because the two parties guestimate as to the potential price the house would have 2–3 years from the forming of the contract, so I don't see the purpose
of this option as far as making it a win situation for the buyer. Many "rent with option to buy" are between owner and renter, but it is wise to bring in
the lender and get advice on the contract so that it includes details such as home repairs, improvements, holding the money, how much the rent is and
what the amount extra will be going towards the earnest money deposit, down payment and closing costs. Locking on price can end up giving one or

Interest and Real Rate
P6–1Interest rate fundamentals: The real rate of return Carl Foster, a trainee at an Investment banking firm, is trying to get an idea of what real rate of
return investors Are expecting in today's marketplace. He has looked up the rate paid on 3–month U.S. Treasury bills and found it to be 5.5%. He has
decided to use the rate of change In the Consumer Price Index as a proxy for the inflationary expectations of Investors. That annualized rate now
stands at 3%. On the basis of the information That Carl has collected, what estimate can he make of the real rate of return?
P6–2Real rate of interest To estimate the real rate of interest, the economics division of Mountain Banks–a major bank holding company–has gathered
the ... Show more content on Helpwriting.net ...
If the real rate of interest is currently 2.5%, find the nominal rate of interest on each of the following U.S. Treasury issues: 20–year bond, 3–month bill,
2–year note, and 5–year bond.
b. If the real rate of interest suddenly dropped to 2% without any change in inflationary expectations, what effect, if any, would this have on your
answers in part a? Explain.
c. Using your findings in part a, draw a yield curve for U.S. Treasury securities.
Describe the general shape and expectations reflected by the curve.
d. What would a follower of the liquidity preference theory say about how the preferences of lenders and borrowers tend to affect the shape of the
yield curve drawn in part c? Illustrate that effect by placing on your graph a dotted line that approximates the yield curve without the effect of liquidity
preference.
e. What would a follower of the market segmentation theory say about the supply and demand for long–term loans versus the supply and demand for
short–term loans given the yield curve constructed for part c of this problem?
P6–6Nominal and real rates and yield curves A firm wishing to evaluate interest rate behavior has gathered

Interest Rate Risk
Interest Rate Risk (IRR) Management
What is Interest Rate Risk :
Interest rate risk is the risk where changes in market interest rates might adversely affect a bank's financial condition. The management of Interest Rate
Risk should be one of the critical components of market risk management in banks. The regulatory restrictions in the past had greatly reduced many of
the risks in the banking system. Deregulation of interest rates has, however, exposed them to the adverse impacts of interest rate risk.
What is the Impact of IRR: The immediate impact of changes in interest rates is on the Net Interest Income (NII). A long term impact of changing
interest rates is on the bank's networth since the economic value of a bank's assets, ... Show more content on Helpwriting.net ...
These policies should be applied on a consolidated basis and, as appropriate, at the level of individual affiliates, especially when recognising legal
distinctions and possible obstacles to cash movements among affiliates. Principle 5: It is important that banks identify the risks inherent in new
products and activities and ensure these are subject to adequate procedures and controls before being introduced or undertaken. Major hedging or risk
management initiatives should be approved in advance by the board or its appropriate delegated committee. Risk measurement, monitoring and control
functions
Principle 6: It is essential that banks have interest rate risk measurement systems that capture all material sources of interest rate risk and that assess the
effect of interest rate changes in ways that are consistent with the scope of their activities. The assumptions underlying the system should be clearly
understood by risk managers and bank management. Principle 7: Banks must establish and enforce operating limits and other practices that maintain
exposures within levels consistent with their internal policies.
Principle 8: Banks should measure their vulnerability to loss under stressful market conditions – including the breakdown of key assumptions – and
consider those results when establishing and reviewing their policies and limits for interest rate risk. Principle 9: Banks must have

Low Interest Mortgage Rate Essay
With regards to mortgages, home owners are constantly out to get the low–interest mortgage rates accessible, yet frequently are not ready to fit the bill
for those rates. This can be for an assortment of reasons including credit history record as a consumer, income, business status, and existing obligations.
Low–interest mortgage rates are basically offered on the basis of how solid the candidate is in meeting all requirements for a mortgage. Banks need the
most elite and in the meantime, the candidates that are in that class will look around until the point when they are offered precisely that.
Your credit rating and history demonstrate how skilled and disciplined you are as a borrower with your credit cards, loans and diverse debts that you
have. It further ... Show more content on Helpwriting.net ...
These things are imperative since they decide your affordability and probability of reimbursing your mortgage. Sometimes banks may discover that
you can bear the cost of a mortgage, however, your debt proportion's are a little on the high side. This can some of the time keep you from accepting
the low–interest mortgage rates you look for. The thought behind this is, the more prominent the money related weight of your debts on your income,
and the more outlandish one can make capable instalments to those debts. With regards to employment status, banks are hoping to build up the
probability of you proceeding to get consistent income for a considerable length of time to come. On the off chance that you are independently
employed, banks will take a gander at different budgetary records to decide your normal yearly income in the course of recent years (least). On the off
chance that an independently employed individual can demonstrate satisfactory income and consistency, at that point the banks will be happy with
offering you the low–interest mortgage rates (accepting every single other condition are

The Interest Rate And Interest Rates
Since people always prefer money right now to the present prospect of getting the same amount of money some time in the future, the present good
always commands a premium in the market over the future. This premium is the interest rate, and its height will vary according to the degree to which
people prefer the present to the future, i.e., the degree of their time–preferences. (Ebling, 1996, p.82)
In determining the originary interest rate, Mises thinks that the rate of originary interest directs the investment activities of the entrepreneurs. It
determines the length of waiting time and of the period of production in every branch of industry. I do not completely agree in this view. Though it is
true that the interest rate plays an ... Show more content on Helpwriting.net ...
It is therefore impossible to formulate any praxeological theorem concerning the relation of the amount of capital available in the whole nation or to
individual people on the one hand and the amount of saving or capital consumption and the height of the originary rate of interest on the other hand.
The allocation of scarce resources to want–satisfaction in various periods of the future is determined by value judgments and indirectly by all those
factors which constitute the individuality of the acting man. (Mises, 1949, p. 24)
The interest rate has three related jobs. First, the interest rate equalizes savings and borrowing. Secondly, the interest rate equalizes net savings and
investment. Thirdly, the interest rate allocates spending for consumption relative to investment. (Foldvary, 2015, web.)
INTEREST, CREDIT EXPANSION, AND THE TRADE CYCLE
In standard economics, the rate of interest is determined by the market for loanable funds, funds available for borrowing. The supply of loanable funds
comes from savings and from money creation. Savings is defined as income minus spending for consumption. Time preference is a general tendency
rather than a universal absolute; hence, some people with a strong concern for their future would save funds even at an interest rate of zero. With a
higher rate of interest, more people are willing to save funds, so at some quantity of saved funds, the supply curve of savings rises with higher rates of
real

Goodrich-Rabobank Interest Rate Swap Essays
Goodrich–Rabobank Interest Rate Swap
1. How large should the discount (X) be to make this an attractive deal for Rabobank?
2. How large must the annual fee (F) be to make this an attractive deal for Morgan Guaranty?
3. How small must the combination of F and X be to make this an attractive deal for B.F. Goodrich?
4. Is this an attractive deal for the savings banks?
5. Is this a deal where everyone wins? If not, who loses?
Introduction:
Players: Morgan Bank, Rabobank, and B.F. Goodrich, Salomon Brothers,
Thrift Institutions and Saving Banks
Goodrich:
In early 1983, Goodrich needed $50 million to fund its ongoing financial needs. However, Goodrich was reluctant to borrow (short term debt) from its
... Show more content on Helpwriting.net ...
Also, Rabobank had never borrowed in the Eurobond market prior to the deal with Goodrich, and Morgan. Since Rabobank conducted only small
amount of dollar based business, and most of the dollar denominated assets were loans whose rates floated with LIBOR. Historically,
Rabobank was able to fund these loans through the following:
В· Interbank deposits at LIBOR.

В· Prime Eurodollar CD?s.
This was the first time that Rabobank would venture into the Eurobond market. Note: Because of Rabobank?s AAA rating it would be able to borrow
in the Eurodollar market at very competitive rates.
Morgan Guaranty Bank:
Morgan acted as an intermediary guarantor between the Goodrich, and
Rabobank to implement the swap. Morgan was merely agreeing to act as a conduit assuming no default payments. In fact, if Goodrich defaulted it
could not collect the floating rate stream from Morgan. The swap was a two way or no way transaction. This was true for the bilateral agreement
between Rabobank, and Morgan also.
Morgan had an AAAcredit rating, and an international reputation, this guarantee effectively lowered whatever credit risk might have otherwise been
present in the swap agreement to acceptable levels for
Rabobank.
In commissions, Morgan received an initial one time fee of
$125,000.00, and an undisclosed annual fee for each of the next 8 years. The going rate for

Correlation Between Money And Real Interest Rate
In blue we have the interest rate in the loanable funds market, and in red, the interest rate in the money market. If the real interest rate is above the
nominal interest rate, either the investment exceeds the desired savings or the supply of money exceeds the demand of money. Shifting the saving
curve to the right, and the demand of money to the right, will bring the interest rate in both markets to be the same.
Money and real Interest Rate
Fisher tries to establish the link between money and the interest rate. For him, the interest rate fluctuation in terms of money and goods is due to
money fluctuation. He argues that the number, or figure, expressing the rate of interest in terms of money does depend upon the monetary standard ...
Thus, in order to compensate for every one per cent of appreciation or depreciation, one point would be subtracted from, or added to, the rate of
interest; that is, an interest rate of 5 per cent would become 4 per cent, or 6 per cent, respectively.
The basic argument to retain is that the interest rate is always relative to the standard in which it is expressed. Fisher then distinguishes the interest rate
expressed in terms of money and in terms of other goods. However, he notes that there will be as many interest rates as many kinds of goods that we
have. To the question if there is then no absolute standard of value in terms of which real interest should be expressed? Fisher propose the Real
income, a composite of consumption goods and services, in other words, a cost of living index affords a practical objective standard. However, he
insists that we always have to consider the value in the two periods of time, so that we must translate from money into goods not only in the present,
when the money is borrowed, but also in the future, when it is repaid. Fisher focuses more in the money rate because he believes that it is the rate in
terms of money with which business men deal and hereafter the rate of interest. He also notes that the money rate and the real rate are normally
identical when the purchasing power is constant or stable.
Fisher notes however that to translate the rate of

Will Low Interest Rates Eventually Boost Corporate Risk...
Will Low Interest Rates Eventually Boost Corporate Risk–Taking?
The intellectual foundation for cutting central bank policy rates to near zero is based on the traditional view that a lower cost of debt funding will
boost aggregate demand via an increase in capital spending as well as higher borrowing by the private sector. The credibility of this viewpoint has,
however, been increasingly questioned over time, particularly in the wake of Japan's prolonged experience with ultra–low interest rates and its ensuing
failure to encourage the growth of private sector leverage. Nominal interest rates remain very low in advanced economies, but there is considerable
variation on inflation–adjusted measures on a cross–border basis. Real interest rates remain high in Japan due to deflationary expectations, despite the
fact that prices have ceased falling. It was the persistence of deflationary psychology and high real interest rates that consequently produced a
prolonged corporate balance sheet recession, where the main objective was to pay down debt. Risk–taking endeavours, such as capital spending, were,
therefore, off–limits during this period. Despite having much healthier balance sheets, Corporate Japan continues to sit on a mountain of cash,
equivalent to 48% of GDP. Meanwhile, US companies also continue to operate with high levels of liquidity. The willingness to use leverage during the
current cycle has, however, been somewhat higher in the US vis–Г –vis Japan. There is also a

Endogenous Money : Implications For The Money Supply...
Endogenous Money: Implications for the Money Supply Process, Interest Rates, and Macroeconomics Abstract
Endogenous money represents a mainstay of Post Keynesian (PK) macroeconomics. PK theory challenged monetarism's description of the money
supply process. The focus of PK endogenous money theory is the mechanics of the money supply process. PK theory is itself divided between
"horizontalist" and "structuralist" approaches to the money supply. Horizontalists believe the behavior of financial institutions is unconstrained by the
availability of liquidity (reserves) provided by the central bank and the supply–price of finance to banks is fixed at a price set by the central bank. The
important difference is that structuralists emphasize the role of bank lending in determining the money supply.
Structuralists believe liquidity pressures matter and the supply price of finance to banks can increase endogenously.
Endogenous money represents a mainstay of Post Keynesian (PK) macroeconomics, and the PK theory of endogenous money constitutes a significant
contribution to macroeconomic theory. PK endogenous money theory emphasizes that this linkage runs predominantly from credit to money to
economic activity. This contrasts with conventional representations that place money first, as reflected in the standard textbook money multiplier story
in which bank deposits are said to create loans.
II Against monetarism: the origins of PK endogenous money theory
The cornerstone of

Interest Rate Determination Essay
JOURNAL OF ECONOMICS AND FINANCE EDUCATION Volume 6 Number 1 Summer 2007
48
Reconsidering the Introduction to Interest Rate Theory
S. Kirk Elwood1
ABSTRACT The various theories of interest rate determination presented in economics textbooks each spotlight a particular fundamental force behind
the equilibrium rate. Unfortunately, each theory's successful emphasis of one determinant of the interest rate comes at the cost of distorting some other
aspect of its determination. This paper argues that the basic market analysis of debt securities (e.g., bonds and commercial paper) left out of most
macroeconomic as well as money and banking textbooks provides a straightforward and practical perspective on interest rate determination ... Show
more content on Helpwriting.net ...
But they never extend the analysis to show how interest rates are generally determined by debt securities markets. Most intermediate texts similarly
discuss the inverse relationship between interest rates and bond prices without mentioning the markets where those prices are determined (e.g.,
Blanchard 2003, and DeLong and Olney 2006). Able and Bernanke (2005) go a little further by acknowledging that changes in money demand affect
bond holdings, but still no debt securities market is developed.
JOURNAL OF ECONOMICS AND FINANCE EDUCATION Volume 6 Number 1 Summer 2007
49
This distinction between debt securities prices and interest rates – on which more will be said below – is supported by the fact that the actual markets
where their joint values are determined are explicitly debt securities markets. Bond markets – primary as well as secondary – and commercial paper
markets quote either the prices or discount rates of their debt securities, and leave the corresponding interest rate to be inferred. The "interest rate" is a
pricing term generally spoken outside of the larger financial markets by retail borrowers and lenders such as local banks.3 In addition to the great
familiarity with interest rates by those who borrow or lend through banks, most economists dependably refer to interest rates instead of debt securities'
prices because it is assumed that economic agents think in terms of interest

Why Interest Rates On Fast Loans
Consumers who encounter a financial emergency often need to borrow money, but they typically need lenders to process their applications quickly.
Cash–strapped borrowers may not have the ability to wait a week or more to receive the funds needed to repair the family car, pay for a spouse to
visit a doctor or patch a roof that is leaking. Therefore, they often turn to fast loans online or through a storefront. Despite their immediate need, many
borrowers wonder why the interest rates on fast loans are so high.
Why Interest Rates on Fast Loans Are High
To understand why fast loans carry such high interest rates, it might be helpful to review how a typical bank determines the interest rates it will charge.
The first thing to remember is that ... Show more content on Helpwriting.net ...
Without considering risk, the lender could offer a loan with an interest rate of 8 percent and still earn a profit. Once risks are evaluated, however, the
interest rate will rise.
How Greater Risks Affect Interest Rates on Fast Loans
Borrowers are individuals with different circumstances, which has always made the risk premium a challenging factor for lenders to assess. To
minimize their risks, lenders put mortgage applications through a process known as underwriting. During the underwriting process, the lender verifies
the applicant 's employment history, income and down payment. The borrower 's debts will be evaluated to ensure that all payments, including the
mortgage payment, can be met. The underwriting process also includes a careful evaluation of the borrower 's credit history.
The underwriting process can take days or even weeks, according to FinWeb.com. Although most people think that lenders only send mortgage
applications through underwriting, many banks also underwrite personal loans, business loans and home equity loans. Underwriting can help lenders
determine the level of risk associated with each loan, but these certainly cannot be considered to be fast loans.
After evaluating the chances that the borrower will not make timely payments or may default on the loan, the lender can then assign a risk premium. In
the example given in the previous section, the lender would be able to offer an interest rate of 8 percent plus the risk premium. If the

Chapter 5 Interest Rate Essay
Chapter 5 Interest Rates
Problem 3
Which do you prefer: a bank account that pays 5% per year (EAR) for three years or
a.An account that pays 2 every six months for three years?
b.An account that pays 7 every 18 months for three years?
c.An account that pays per month for three years?
If you deposit $1 into a bank account that pays 5% per year for 3 years you will have after 3 years.
a.If the account pays per 6 months then you will have after 3 years, so you prefer every 6 months.
b.If the account pays per 18 months then you will have after 3 years, so you prefer 5% per year.
c.If the account pays per month then you will have after 3 years, so you prefer every month.
Problem 6 Your bank account pays... Show more content on Helpwriting.net ...
For the second month, solve for the value of the remaining 58 payments:
49,283.36 – 48,563.14 = 720.22 is amount of the payment that went to paying the principal, while 966.64 – 720.22 = 246.42 was interest.
For the first year, solve for the value of the remaining 48 payments:
50,000 – 41,159.84 = 8840.16 is amount of the payment that went to paying the principal, while (966.64 12) – 8840.416 = 2759.52 was interest.
b. At the end of year 3, there are 24 payments remaining. The balance of the loan is:
At the end of year 4, there are only 12 payments remaining. The balance of the loan at the end of the 4th year is:
21,810.17 – 11,231.33 = 10,578.84 is amount of the payment that went to paying the principal, while (966.64 12) – 10,578.84 = 1,020.84 was interest.

Problem 23 The mortgage on your house is five years old. It required monthly payments of $1402, had an original term of 30 years, and had an
interest rate of 10% (APR). In the intervening five years, interest rates have fallen and so you have decided to refinance–that is, you will roll over the
outstanding balance into a new mortgage. The new mortgage has a 30–year term, requires monthly payments, and has an interest rate of 6 5вЃ„8%
(APR).
a.What monthly repayments will be required with the new loan?
b.If you still want to pay off the mortgage in 25 years, what monthly payment should you make

How Does Truck Financing Affect Interest Rates
Truck Finance: What Factors Affects Interest Rates
The best truck financing eventually means that you have to pay low interest rates and low monthly payments. Trucking businesses that do not ensure
that they obtain the best deal on their loans could face difficulties in generating profits if the majority of their revenue has to spent on loan repayment.
The optimum way to avoid this phenomenon is to develop a concrete plan before availing truck financing.
Truck owners' personal credit is equally important as their business credit to future lenders. Careful and thorough planning effectively means that these
business owners will require receiving their personal credit reports and business credit reports to ensure that there are no goof–ups on them that may
contribute to lowering their credit scores. If such mistakes appear on credit reports, business owners can have them eliminated before a lender checks
these reports. It is vital that ... Show more content on Helpwriting.net ...
Truck financing that is eventually requesting the truck's full purchase price puts the lender at 100% of the risk. When truck owners agree to take a
substantial amount of the risk from the eventual lender, the latter rewards these clients with lower interest rates. Loans obtained at low rates of interests
do not take too long to pay off, and they allow truck owners to obtain a profit sooner in comparison with paying high interest payments.
When truck owners are in the process of buying trucks, they can take the opportunity to effectively become pre–qualified for their truck financing.
When they successfully do this, they ultimately know what interest rates lenders would be offering as well as the terms that they may be able to obtain.
When they decide to purchase trucks with this knowledge, they can quickly compare their pre–qualified deals to the ones that the financing company are

Factors That Affect A Fluctuation On Interest Rates From...
Methods To enhance the data, I gathered for my research and bring it all together, I conducted three semi–structured interviews to help me uncover a
better understanding of what the impact on a fluctuation in interest rates from the Federal Reserve has on the economy and market in the U.S and
other countries. During this time, I had three participants who donated their time to tell me a little more about themselves and what they knew about
my topic. Participant 1, was a sixty–one–year–old male whom is a finance professional, as is he also a finance professor at Pace University. The
knowledge he provided to me was very educational and helped me understand a little more about the missing information I needed to obtain from my
literature... Show more content on Helpwriting.net ...
Participant 1 was my number one choice, and once a date and time was scheduled I conducted the face to face interview that lasted approximately
nine minutes. Participant 2 sparked my interest because of the knowledge I knew he had on the stock market and immediately knew he would be
the perfect fit as one of my interviewees. We had the date and time set for a face to face interview and it lasted approximately eleven minutes.
Participant 3 is very educated and has experience with the stock market and because of his knowledge I chose him to be my third interviewee.
Participant three was my first phone interview and it lasted around eight minutes. After completing these three interviews I started my transcribing
and coding process. This process definitely took some time to get used to, actually it's still very complicated. I found myself keep rewinding back
to get all of the exact detail, and everything that was said every few seconds. My procedure for this was to listen through the whole interview one
time to see the tempo of how the interviewee was talking. I wanted to get used to the sound of his voice and the dialect he talked with. The second
time I listened I would type as much as I could for one question I asked, and then go back to see what I missed, and keep doing this. As tough as it
was I got through it and it was a great experience. Results The results from the study of the lasting effects a

The Cash Rate Is The Overnight Money Market Interest Rate...

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