In the United States economy, the interest rate is: a. the equilibrium cost of borrowing capital. b. determined by the supply and demand for loanable investment funds. C. controlled to some degree by the Federal Reserve System. d. a, b, and c are correct.

In the United States economy, the interest rate is: a. the equilibrium cost of borrowing capital. b. determined by the supply and demand for loanable investment funds. C. controlled to some degree by the Federal Reserve System. d. a, b, and c are correct.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Related questions

Q: Which of the following statements is incorrect? a. when market rates are changing, the discount rate…

A: b. money market interest rates tend to respond quickly to Federal Reserve open market operations:…

Q: A.Discuss three factors that affect net interest income.B.What are the objectives of the Basel III…

A: Net interest income is the difference between the revenue that is generated from a bank's assets and…

Q: Please select whether the following statements are true or false. As long as the discount rate is…

A: The federal funds are the excess funds of the commercial banks and other financial institutions that…

Q: 29. Which of the following statements are true? Statement I. An interest rate reflects the rate of…

A: Interest rate is one of the most important concepts which impacts the financial market in the…

Q: One measure of "ability to pay" the national debt is the debt to

A: Debt/GDP Debt to GDP ratio indicates that ability of country to pay national Debts. By comparison…

Q: It is an average interest rate that banks offer in the financial market: a. effective rate b.…

A: Effective Rate: It is the interest rate on a loan provided or financial security restated from the…

Q: How do Capital Guaranteed Notes function?

A: Capital notes are short term unsecured debts which are generally issued by firms in order to pay…

Q: Which one of the followings is NOT a money market financial instrument? A) Treasury Bills OB)…

A: Solution:- Money market financial instruments are those financial instruments whose maturity values…

Q: Considering the Market for Loanable Funds, explain what the following statement means: “Bonds…

A: The statement refers to the decision-making process for issuing bonds in the context of the market…

Q: The primary difference among various kinds of depository institutions is in the composition of…

A: Depository institutions include commercial banks, Credit unions, and other institutions that are…

Q: Consider the monetary policy rule under financial frictions. If f >0 the prevailing market real the…

A: Consider the monetary policy rule under financial frictions.

Q: Explain the interest rate sensitivity of government debt as a function of: i) its maturity and ii)…

A: Financing price affectability may be a proportion of what quantity the value of a fixed-pay resource…

Q: Identify some macroeconomic factors that influence interest rates and explain theeffects of each.

A: Following are the macroeconomic factors that influence interest rates: GDP An ascent in GDP will…

Q: Initial margin requirements are determined by the Securities and Exchange Commission. the Federal…

A: The problem statement identifies the authority that fixes the initial margin requirement for trading…

Q: please use a specific example to compare what is the discount rate% and what is the investment rate…

A: Explanation:- Discount rate % on treasury bills: The income generated on the T-bill is equal to…

Q: Financial markets that facilitate the flow of short-term funds are known as: O Primary markets O…

A: Financial markets can be defined as the market where financial assets or instruments are traded.…

Q: The market interest rate.... Select the word list below: - is the contractual interest rate used to…

A: The market interest rate refers to the rate of return that is prevalent in general for all…

Q: The cost of money is expressed through interest rates. Describe three different “premiums” that have…

A: Solution:- Interest rate is the price of money. It can be interpreted in 3 ways: i) Required rate of…

Q: 1. Which one of the following is not a money market security: a. Treasury Bill. b. REPO. c. LIBOR.…

A: Money market securities are short term securities or instruments generally issued by government,…

Q: A bank's net interest margin represents the proportion of its investments that are financed with…

A: The difference between interest paid and interest received, adjusted for the entire amount of…

Q: The Interest rate on which of the following is the LIBOR? a. Banker's acceptances b. Repurchase…

A: LIBOR: IT IS THE BENCHMARK INTEREST RATE AT WHICH MAJOR GLOBAL BANKS LEND TO ANOTHER.

Q: w do yo

A: The effective interest rate is the actual interest rate earned or paid on an investment or loan over…

Q: Expansionary monetary policy is aimed at ________ the federal funds rate and ________ the aggregate…

A: The basic purpose of expansionary policy is to raise aggregate demand for meeting the shortfalls…

Q: Clearly explain at least two similarities and at least two differences of financial institutions…

A: Agents, brokers, institutions, and intermediaries purchase and sell assets in financial markets.…

Q: Illustrate with examples , that Interest rate is equivalent to the savings rate from the deposits?

A: Interest received It is the amount that is received to a person for the investment made. A rate at…

Q: How do differences in fiscal policies. impact interest rate parity?

A: Interest rate parity (IRP), a cornerstone of international finance that states that the difference…

Q: part-a: What is the difference between direct finance and indirect finance? part-b: What are the…

A: Since you have posted a question with multiple subparts, we will solve first three sub parts for…

Q: What is occurring with the recent federal interest rate being raised ?

A: The federal interest rate has been increased several times in the recent past. The impact has to be…

Q: Explain the differences between domestic debt and external debt.

A: Debt is defined as money borrowed through one party by another. Many businesses and people utilize…

Q: The APR is a. the average annual percentage cost paid on deposits b. the average rate paid on…

A: The APR is (c) the average rate paid for credit

Q: When considering counterparty credit risk, which of the following financial products has the largest…

A: Counterparty credit risk is referred as the risk used to arise from the possibility, where the…

Q: Which of the following characteristics apply to U.S. Treasury bills?I. Income taxed at both the…

A: The securities which are regulated by the U.S. government and have a maturity of a year or less is…

Q: Which of the following deals with instrument relating to long-term debt and equity? Select one: A.…

A: Long term debt and equity are investments made for the long term in either the debt of a company via…

Q: Those financial markets that facilitate the flow of short-term funds are known as: Question 6…

A: The objective of the question is to identify the type of financial market that facilitates the flow…

Q: Finance in classical economics studies all of the following issues EXCEPT Time value of money…

A: Finance in calssical studies all the following: time value of money, equilibrium price risk, asset/…

Q: 5. Discuss the determinants of interest rates. Draw the graph of a hypothetical government bonds…

A: Interest rate is the rate which we receive on the investments made by us. This interest rate always…

Q: An example of a capital market security would be: a bond a Treasury bill commercial paper a…

A: A bond refers to the debt instrument that is generally issued by corporations in order to raise debt…

Q: a. b. C. Which one of these is considered to be the safest investment? U.S. Treasury Bonds The S&P…

A: Treasury Bills or T-Bills are the safest possible investment and provide a "risk free rate of…

Q: What are the principles of federal finance?

A: Federal finance, in simple terms, would means to allocate the source of revenue among all the levels…

Q: What are Capital Markets, and how do bonds markets fit into the definition of Capital Markets?

A: Capital markets is a broad term used to describe a venue where funds are exchanged between suppliers…

Q: Which of the following interest rate is the rate charged by Federal Reserve Banks for their loans to…

A: Explanation of the given options:Federal Fund rate- The Federal Fund rate is the rate set by the…

Concept explainers

Flow of Funds

The flow of funds is the financial accounts of the nation, which monitor and control the cash flow among various sectors or industries, or markets. Central banks use these flow of funds statements to acquire macroeconomic data, to publish cash inflow and cash outflow statements of the nation. This flow of funds system is utilized to identify economic activity and changes in the economy. It is used by Federal Reserve to determine the Gross Domestic Product (GDP) of the nation and to implement monetary policy and fiscal policies.

Question

In the United States economy, the interest
rate is:
a. the equilibrium cost of borrowing capital.
b. determined by the supply and demand
for loanable investment funds.
c. controlled to some degree by the Federal
Reserve System.
d. a, b, andc are correct.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Why is the Overnight Reverse Repurchase rate (ON RRP rate) the actual price floor in the Federal Funds market?
8. According to the Loanable funds' theory, how are interest rates determined?9. Compare and contrast three different money market securities in terms of issuer, return, risk and tradability/liquidity.10. Explain the role of non-depository financial institutions within the financial sector? Discuss the core functions of any three of these institutions.
8) In a contemporaneous reserve accounting (CRA) system, the reserve computation and reserve maintenance periods overlap. a) What is the drawback of a CRA system? b) What is the effect of a CRA system on banks' reserve holding strategies (increase or decrease reserve holding)? c) What is the effect of a CRA system on the federal funds rate?
The Federal Reserve Bank has the power to manipulate the Federal Funds Rate indirectly . O a. True O bFalse
how does the Federal Reserve System use the interest rate to affect the money supply.
Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: Characteristic It changes over time, depending on the expected rate of return on productive assets exchanged among market participants and people's time preferences for consumption. This is the rate on a Treasury bill or a Treasury bond. This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time. It is based on the bond's credit rating; the higher the rating, the lower the premium added, thus lowering the interest rate. It is based on the bond's marketability and trading frequency; the less frequently the security is traded, the higher the premium added, thus increasing the interest rate. As interest rates rise over time, bond prices fall, and as interest rates fall, bond prices rise. Because interest rate changes are uncertain over the life of the…
The Federal Reserve System publishes three definitions of money because different assets vary in the degree to which they satisfy the function of money. True/false. Explain why?
The Interest rate on which of the following is the LIBOR? a. Bankers' acceptances b. Repurchase agreement c. Certificate of Deposits d. Eurodollar CD
Based on your understanding of the fAactors that affect the cost of money, Identify which of the following statement is true. a. higher inflation leads to lower interest rates. b. Interest is the price paid to borrow funds. c. Higher risk leads to lower interest rates.
With open market operations, the federal reserve sets the interest rate it lends to banks. Ture or false
18. Which of the following statements are true?Statement I. An interest rate reflects the rate of return that a creditor receives when lending money, or the rate that a borrower pays when borrowing money. Interest rates change over time, so does the rate earned by creditors who provide loans or the rate paid by borrowers who obtain loans. Statement II. Interest rate movements have a direct influence on the market values of debt securities, such as money market securities, bonds, and mortgages. Statement III. Interest rate movements have an indirect influence on equity security values because they can affect the return by investors who invest in equity securities. Statement IV. Since interest rates have an influence on securities, participants in financial markets attempt to anticipate interest rate movements when restructuring their investment or loan positions. a. I,II,III b. I,II,IV c. I,III,IV d. I,II,III,IV
Question 1: a. The risk structure of interest rates and the term structure of interest rates are identical. True or False? Explain. b. The yield curve is a forecasting tool for inflation, the business cycle, and monetary policy. True or False? Explain.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS