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Were low-interest rates the underlying cause of the financial crisis? Explain.
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Solved in 2 steps
- Explain how a financial crisis typically occurs. What are the stages of a financial crisis? Why should governments try to avoid financial crises?Would the market-value debt ratio tend to be higher than the book-value debt ratioduring a stock market boom or a recession? Explain.The central bank takes action that lowers interest rates dramatically. what is the effect of it to firm value? increase or decrease and why.
- Discuss how Minsky’s instability hypothesis helps us understand the causes of financial crises.How does credit risk for a financial institution differs from default risk and What are the problems faced by a financial institution to measure credit risk?Explain why the covered interest rate parity (CIP) condition can be violated during the financial crisis based on Naohiko Baba and Frank Packer (2009)..
- How do risk and inflation impact interest rates in the economy?How do investors deal with inflation when they determine interest rates in the financial markets?Interest rate risk is the potential for investment ( ) that result from a change in interest rates. If interest rates ( ) , for instance, the value of a bond or fixed-income instrument will decline.
