As the treasurer of a manufacturing company, your task is to forecast the direction of interest rates. Your company plans to borrow funds and it may use the forecasting of interest rates to determine whether it should obtain a loan with a fixed or floating interest rate. The following information can be considered when assessing the future direction of interest rates: ▪ Economic growth has been high over the last two years, but it is expected that it will be stagnant over the next year. ▪ Inflation has been 3 percent over each of the last few years, and it is expected that it will be about the same over the next year. ▪ The federal government has announced major cuts in its spending, which should have a major impact on the budget deficit. ▪ The Central Bank is not expected to affect the existing supply of loanable funds over the next year. ▪ The overall level of savings by households is not expected to change. Question: (a) Given the preceding information, assess how the demand for and the supply of loanable funds would be affected (if at all), and predict the future direction of interest rates.
As the treasurer of a manufacturing company, your task is to forecast the direction of interest
rates. Your company plans to borrow funds and it may use the
determine whether it should obtain a loan with a fixed or floating interest rate. The following
information can be considered when assessing the future direction of interest rates:
▪
stagnant over the next year.
▪ Inflation has been 3 percent over each of the last few years, and it is expected that it will
be about the same over the next year.
▪ The federal government has announced major cuts in its spending, which should have a
major impact on the budget deficit.
▪ The Central Bank is not expected to affect the existing supply of loanable funds over the
next year.
▪ The overall level of savings by households is not expected to change.
Question:
(a) Given the preceding information, assess how the demand for and the supply of loanable
funds would be affected (if at all), and predict the future direction of interest rates.
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