Economics of Banking

Short-term bank loans are available at an 8 percent interest rate. Cindy and Rob believe that the cost of obtaining long-term debt and equity capital will be somewhat higher. The real interest rate is estimated to be 2 percent, and a long-run inflation premium is estimated at 3 percent. The interest rate on

16. If the nominal interest rate on an account is 1% and the inflation rate is 2%, the real interest rate is:

During the Federal Reserve meeting in April 2016, the range was left unchanged for federal funds at 0.25 percent to 0.5 percent (TRADING ECONOMICS, 2016). Labor markets experience growth confirmed by policy makers, yet economic activity was monitored as being slow (TRADING ECONOMICS, 2016). The risks associated with the financial developments of the country have ceased (TRADING ECONOMICS, 2016). The average percentage of interest rate in the U.S. averaged at 5.8. March of 1980 a record high was recorded at 20% (TRADING ECONOMICS, 2016). The lowest interest rates were recorded in the month of December 2008 at 0.25% (TRADING ECONOMICS, 2016).

During the Federal Reserve meeting in April 2016, the range was left unchanged for federal funds at 0.25 percent to 0.5 percent (TRADING ECONOMICS, 2016). Labor markets experience growth confirmed by policy makers, yet economic activity was monitored as being slow (TRADING ECONOMICS, 2016). The risks associated with the financial developments of the country have ceased (TRADING ECONOMICS, 2016). The average percentage of interest rate in the U.S. averaged at 5.8. March of 1980 a record high was recorded at 20% (TRADING ECONOMICS, 2016). The lowest interest rates were recorded in the month of December 2008 at 0.25% (TRADING ECONOMICS, 2016).

The nominal risk-free rate, which includes an inflation premium equal to the average expected inflation rate over the life of the security. The T-bill rate to measure the short-term risk-free rate The T-bonds rate to measure the long-term risk-free rate. In this case,we should choose T-bonds rate. Because the T-bill is safe because it is issued by the governments, and it has a short period to maturity. That is good investment returns are usually stated as annual returns, and the T-bill rate is a one-year risk free rate.

How has growth changed since the Great Recession? How has monetary policy around the world changed since then? Should central bankers seek to return monetary practices back to the old normal or adapt to new

The Federal Reserve has set the current interest rate a 0.13, this number is unchanged from the previous week (Board of Governors of the Federal Reserve System, 2015). The current trend for the year 2015 is that the interest rate is beginning to slowly increase (Board of Governors of the Federal Reserve System, 2015). The inflation rate has remained at 0.1 or less for the year 2015, the latest inflation rate was release on June 2015 and was calculated at 0.1 (Coinnews Media Group, 2015). This was the first time in 2015 that the inflation rate has increased. Previous months were either negative or unchanged (Coinnews Media Group, 2015). However, this is an increase from the previous month. The interest rate and inflation are inversely related,

The inflation rate of the US is 2.3309% using the arithmetic average, then using the geometric

Real price change. A change in price that is net of inflation. A real price change reflects an actual change in value relative to wages and other goods as opposed to a change in value because of a general inflation prices.

Then, we can get growth rates of 2007 -2011 are 2.46%, 1.76%, 4.09%, 3.61% and 2.78% respectively. Finally, we take the average growth rate of 2.94% as long-term growth rate. The computation is showed in Exhibit 2($ in thousands).

The Federal Reserve went into action in response to the 2008 recession by rapidly reducing interest rates with the hopes of encouraging economic growth. The federal funds target rate was decreased to between zero and .25 percent. The results of the rate changes caused what is called “zero bound”, this reduced the effectiveness of monetary policy with the near non-existence of interest rates.

I can plug the numbers from the given information above into Stitz and Zeager’s (2011, p. 470) compound interest equation:

The interest rates of Australia have gained some increase after a large decrease over the past year. As the figure shows Australia’s interest rate in December is the highest in recent months even though it is incomparable to the rates of past years. In 2007 the interest rate started as 6.25 it increased in August up to December. In 2008 higher interest rates were acquired. The rates started from 7.00 but lost its momentum in September until December. In 2009 the interest rates was lower than the December 2008 rates. Some improvements were seen in the latter part of the year. The interest rates of Australia is just like its money market, both have experienced some difficult time and are on the path to recovery. A probable reason for the past

When dealing with interest rates and inflation the standard equation that is used is Fisher equation. What the fisher equation explains is that the real interest rate and expected inflation equals to the nominal interest rate (it = rt + Etπt+1) This means that a rise in expected inflation causes lenders to raise their nominal interest rates as there would be a decrease in the value of their loans due to purchasing power of repayments being lower and this causes the decline in investment as borrowing costs rise.

The media has recently spent much attention on events in the UK Gilt market, where yields have been rising against a backdrop of a depreciating sterling exchange rate. Investors clearly fear, therefore, that the UK will soon be importing inflation. Approximately 66% of UK imports are invoiced in US dollars, while 23% is billed in sterling and just 5% in Euros. In terms of assessing the threat of imported inflation, the prospective behaviour of Cable (£/S) is, therefore, critical. The UK 10-year gilt yield has increased 580 basis points since its mid-August low. The recent path of UK gilts is, however, somewhat analogous to other major government bond markets: yields have recently been creeping upwards. The German 10-year Bund yield bottomed in early-July, while the equivalent JGB measure followed suit later that month. Central banks were not necessarily at fault. The Bank of Japan (BoJ) has arguably been more exposed to criticism that monetary policy is close to hitting the buffers in terms of efficacy. Governor Kuroda recently announced the BoJ would be targeting the yield curve, where the aim of policy is to steepen the slope between the 10 and 30 year segments. Meanwhile, the European Central Bank (ECB) has refrained from adding further stimulus, although it is constantly reviewing its asset purchases. The Fed has stood pat during 2016 in terms of raising the federal funds target, despite periodic bouts of angst. Meanwhile, US