Questions On Notes On Corporate Bonds Essay

The exchange rate is the price of one currency in terms of another. A fall in the value of the pound is known as a depreciation and affects both the level of aggregate demand and the costs of production for firms in the UK economy. //One way in which a fall in the exchange rate can be beneficial for the UK economy is that it “should help UK exporters whose goods will be cheaper overseas”. An UK exports are priced in Sterling, and when Sterling can be purchased more cheaply, this makes our goods more affordable. An increased demand for UK exports is an injection into the UK economy and would serve to boost aggregate demand, enabling UK firms to make use of any spare capacity in order to increase output. This would also lead to a higher

The other financial intermediaries include insurance companies, mutual funds and pension funds. In Japan, banks provide more financing than other financial intermediaries do. In the U.K., other financial intermediaries provide substantially more financing. In the U.S., banks are less important sources of financing compared to financial intermediaries. While in Europe, financing provided by banks and financing provided by other financial intermediaries are approximately equal.

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.

To begin, the article explains the Federal Reserve’s plan to take a careful approach to enacting contractionary monetary policies, policies used to decrease money supply, in the future. Last December the Federal Reserve raised the interest rates after they had been near zero for years to ensure inflation was kept in check and to promote economic growth. It appeared the economy would be in for another increase in the interest rates sometime this year, but the Feds have rethought that strategy. If the Federal Reserve were to continue to raise interest rates it would have short-run and long-run effects on the Money Market, Goods and Services Market, Planned Investment, Phillip Curve, and Aggregated Supply and Demand. These effects are aspects that have to be considered because they express and explain the effects the increase in interest rates has on the economy and explain if the Federal Reserve is enacting the correct policy to achieve their goal.

Interest rate risk the price of the bonds changes because of the increase and decrease of the interest rates.

Now, the advantages of debt capital centre on its relative cost. Debt capital is usually cheaper than equity because, the pre-tax rate of interest is invariably lower than the return required by shareholders. This is due to the legal position of lenders who have a prior claim on the distribution of the company’s income and who in liquidation precede ordinary shareholders in the queue for the settlement of claims. Debt is usually secured on the firm’s assets, which can be sold to pay off lenders in the event of default, i.e. failure to pay interest and capital according to the pre-agreed schedule;

3) The central or treasury bank should drop its interest rate immediately or soon after the tax cuts to control interest rates from commercial banks and inflation. (However a decrease

Increase in interest rates makes borrowing an expensive affair and in turn killing the demand for loans and other related products and hence negatively impacting

Official interest rate changes will also influence asset prices. For example, bond prices are inversely influenced by long-term interest rates. Finally, the official interest rate will also affect the exchange rate which the paper defines as “the relative price of domestic and foreign money” (George et. al, n.d.). When the official interest rate rises, domestic currency (the GBP) will see appreciation making investors want to invest in pounds. Another key point is that with changes in the exchange rate, there will also be a change in the value of domestic and foreign exports and imports. Finally, a change in the official interest rate can also affect people’s expectations and confidence in the economy. For example, some may believe that an increase in interest rates is a signal that the MPC thinks that the economy is expanding thus making further growth likely or, a contradictory interpretation may be that the MPC thinks that the MPC may need to slow growth in order to control inflation (George, n.d).

II) Since there will be an increase in the inflation rate, interest rates too will be high. This is because higher interest rates will be charged for loans and credits to compensate lenders for the declining value of money. Higher interest rates will also mean the spending and Investment will fall which might be crippling to the economy

Reduce the incentive to save because consumers are spending more and the lower interest rates provide a smaller return on investment from saving.

In the real estate business, you will hear the term mortgage a lot, this is a common term. A mortgage is a loan that the buyer secures to finance the purchase of real property such as a home (Floyd & Allen, 2011). A mortgage is an investment that last for 15 or 30 years, this means that the mortgagee needs to be fully committed to the purchase. With a mortgage there are several things that get paid for over the life of the mortgage. The parts are the principal, accrued interests, taxes, and insurances (Rodriguez & Dombrow, 2015).

Issuing new shares and moving to retire outstanding debt reduces leverage reduces the degree of exposure and magnification that the company will experience due to cash flow and other economic fluctuations-by reducing fixed costs and spreading the exposure around to a wider pool of investors (Bierman, 2003). This would be most advantageous during a year when it is expected that there will be a tightening of

D: constant short-term interest rates in the near future and a small decline further out in the future.

It then began to affect the general availability of credit to non-housing related businesses and to larger financial institutions not directly connected with mortgage lending. At the heart of many of these institution 's portfolios were investments whose assets had been derived from bundled home mortgages. Exposure to these mortgage-backed securities, or to the credit derivatives used to insure them against failure, threatened an increasing number of firms such as Lehman Brothers, AIG, Merrill Lynch, and HBOS.