In early October 2008, before the Global Financial Crisis broke, the SA risk premium was a low 2%. But by 24 October that month, the risk premium had risen devastatingly to 6.5%. By the end of that tumultuous year, the risk premium had declined to a still elevated and expensive 4%. On 19 October 2015, the risk premium before Nenegate was an average of 2.4%. But by 20 January 2016, the risk premium had topped out at 3.89%, a 150-bps increase. This declined after the Ministry of Finance had been restored to what was regarded as safer hands. a. The above paragraph notes two economic shocks which resulted in changes (initial increase, then decrease) in the risk premium in South Africa. With use of two diagrams explain how these changes would have impacted the cost of borrowing, the real interest rate and output in South Africa. b. What policy/ies could the South African government have adopted to offset the impact of the changes the risk premia?
Use the information in the paragraph to answer the following questions.
In early October 2008, before the Global Financial Crisis broke, the SA risk premium was a low 2%. But by 24 October that month, the risk premium had risen devastatingly to 6.5%. By the end of that
tumultuous year, the risk premium had declined to a still elevated and expensive 4%. On 19 October 2015, the risk premium before Nenegate was an average of 2.4%. But by 20 January 2016, the risk
premium had topped out at 3.89%, a 150-bps increase. This declined after the Ministry of Finance had been restored to what was regarded as safer hands.
a. The above paragraph notes two economic shocks which resulted in changes (initial increase, then decrease) in the risk premium in South Africa. With use of two diagrams explain how these changes would have impacted the cost of borrowing, the real interest rate and output
in South Africa.
b. What policy/ies could the South African government have adopted to offset the impact of the changes the risk premia?
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