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Essentials of Investments9th EditionAlan J. Marcus, Alex Kane, Zvi Bodie 689 solutions 34.Which of the following is not true regarding foreign interest rates?A) The large flow of funds between countries causes interest rates in any givencountry to become more susceptible to interest rate movements in othercountries.B) The supply of loanable funds provided by U.S. and German investors to theUnited States declined as a result of the German reunification.C) An increase in a foreign country’s interest rates will encourageinvestors in that country to invest their funds in other countries.D) All of the above are true regarding foreign interest rates.ANSWER:C 35.Which of the following is least likely to affect household demand for loanablefunds?C Chapter 1/Role of Financial Markets and Institutions2136.The September 11 attack on the United States had no impact on U.S. interestrates.B 37.In response to the September 11 attack, the Fed ________ the supply ofloanable funds in the banking system, which placed _______ pressure oninterest rates.D Chapter 3____________________________________Structure of Interest Rates1.Default risk is likely to be highest forA) short-term Treasury securities.B) AAA corporate securities.C) long-term Treasury securities.D) BBB corporate securities.ANSWER:D 2.If a security can easily be converted to cash without a loss in value, itA 3.If all other characteristics are similar, ______ would have to offer ______. 22Chapter 1/Role of Financial Markets and InstitutionsB) taxable securities; a higher before-tax yield than tax-exempt securitiesC) tax-exempt securities; a higher after-tax yield than taxable securitiesD) tax-exempt securities; a higher before-tax yield than taxable securitiesANSWER:B4.Assume an investor’s tax rate is 25 percent. The before-tax yield on asecurity is 12 percent. What is the after-tax yield?C How will an expected increase in the rate of inflation affect interest rates?Inflation will also affect interest rate levels. The higher the inflation rate, the more interest rates are likely to rise. This occurs because lenders will demand higher interest rates as compensation for the decrease in purchasing power of the money they are paid in the future.
What happens the equilibrium interest rate when the supply of money increases?The real money supply will have risen from level 1 to 2 while the equilibrium interest rate has fallen from i $′ to i $″. Thus expansionary monetary policy (i.e., an increase in the money supply) will cause a decrease in average interest rates in an economy.
What is the equilibrium interest rate quizlet?Equilibrium Interest Rate. The point at which the quantity of money demanded equals the quantity of money supplied determines the equilibrium interest rate in the economy. Total Demand for Money.
When real interest rates are negative?When inflation is 3 percent, and the interest rate on a loan is 2 percent, the lender's return after inflation is less than zero. In such a situation, we say the real interest rate—the nominal rate minus the rate of inflation—is negative.
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Which of the following is not true regarding foreign interest rates?
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