Questions tagged [interest-rate]

The proportion of an amount loaned which a lender charges as interest to the borrower, normally expressed as an annual percentage. The interest rate is typically determined by a combination of market forces and monetary policy.

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24 views

Why it is important to observe if the 10Y treasury yield moves nowadays?

in the context of low yields, where fed continues with fiscal stimulus, I've heard from many economists that this week the 10Y treasury rate has been finally increasing. In which situation is this ...
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Uses of simple interest

Recently I started to read again Brealey & Myers's "Principles of Corporate Finance" (an older edition I hold it since I attended to the university course on Economics and Corporate ...
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Dynamics of interest rates, exchange rates and bond prices within the UIP

There are already a few questions about the workings of the UIP and the exchange rate. What I have basically taken from those discussions is that one always has to distinguish between the spot rate ...
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21 views

Why did Mexico have such a high deposit rate in the 70's despite fixed exchange rate?

Why did Mexico have a high deposit rate in the 70's? Why would a bank want to pay the public such a high interest rate?
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Negative Interest Rates - incentive to lend? [duplicate]

I was reading up on negative interest rates on Investopedia, where they clamed this: The negative interest rate is meant to be an incentive for banks to make loans during a period in which they would ...
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overnight index swaps OIS

I'm writing a paper where I am using expected federal funds rates at different horizons and wanted to use the OIS as a proxy for what the market expects the FFR to be post FOMC-meetings. However, I ...
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68 views

A question regarding eurodollar futures rate

I am reading a paper, and cannot understand this part. In the second line, it is said that the pay off on this futures contract equals one minus the current annualized 3 month LIBOR rate in the ...
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Calculate dividend yield using cumulative dividend and price

I just learned basic theory of option pricing and I'm doing some exercise. There is a problem about dividend yield. Suppose we are given cross-sectional data like this: where $S$ is the price of ...
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What is the state of the art in capital theory?

In the first half of the 20th century a great deal was written about capital theory, including writers such as Hayek, Böhm-Bawerk, Sraffa, Knight, Robinson and Fisher. Many of these figures debated ...
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What is the relation between the USD Swaps Rates and US treasuries?

I understand a swap rate is the fixed leg on a IRS (source), and a swap spread is the difference between a swap rate and the interest rate of a US treasury of the same/similar maturity. (source) I ...
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How does fed cutting federal fund rate affect student loan

If fed cuts rate, it means it's cutting federal fund rate right? then why do loans like credit card and stuend loan? those aren't like Mortgage rate which the fed cuts its rate by buying MBS
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Difference between yield curve and term structure of interest rate

Can somebody please explain me the difference between yield curve and term structure of interest rate? Thanks
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mortgage rate in 2008 [closed]

if banks and finanfial entity paniced, which cause people to stop lending which leads to higher interest rate, how did the mortage rate stayed the same in 2008? it barely dropped. It's kind of ...
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Free Sources of Implied Repo Rate Data?

Are there freely available historical data on implied repo rates? In quick review, what's an implied repo rate? In futures markets, the implied repo rate (also commonly called the IRR) is the rate of ...
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What does it mean, 'Higher interest rates attract FIIs and FPIs'?

What would interest rates have anything to do with shares? When we say a higher interest rate attracts FII/FPI, does it not mean it is investing in shares of a company? For example, how does it help a ...
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Why is Keynes attacking the (neo)classical theory of interest rates on the grounds that it is indeterminate?

I do understand that he argues that in order to draw the loanable funds supply curve, you have to already know the volume of income, i.e. production, and therefore the interest rate in advance. But ...
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loanable funds theory: why is the supply of loanable funds equal to saving (+ dishoarding + new money)?

It seems that the loanable funds theory suggests that all that is saved is supplied in the market for loanable funds. This makes sense when we are talking about 'household saving' (i.e. household ...
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Will banks in the US continue to offer CDs?

Earlier this year, the Fed abolished the reserve requirement. My understanding was that the motivation for banks offering CDs was because the Fed didn't impose reserve requirements on CDs, so banks ...
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Why were Treasury interest rates 3-4% in 1999-2000, 2007-2008, but merely 0.6-0.7% now?

rymor comments on Is there a Tech bubble forming? The fact that 10 year treasury rates were 3-4% during the booms in 1999/2000 and 2007-8 is a big difference IMO. Now, you can’t get more than 0.2% in ...
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Was there a drop in liquidity in the corporate bond market during the Global Financial Crisis?

It is often said that the increase in the perceived default risk led to a fall in the demand for the corporate bonds. This led to the fall in their prices and hence, their interest rates rose ...
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How do low interest rates negatively impact bank earnings?

A lot of Banks are focused on bread and butter lending to small businesses and consumers. Many of those are putting aside provisions for loan losses in the wake of the Covid-19 pandemic. Headlines ...
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What is the difference between the cash rate and interest rate?

What is the difference between the cash rate and interest rate? I (in Australia) googled cash rate and according to wikipedia it is the "central bank charges on overnight loans between commercial ...
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Why would mortgage rates go up if interest rates go down?

What reasons or scenarios could cause a case where mortgage rates would rise if interest rates(federal funds rate) fall? Is that even possible?
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Why are the YTMs of TIPS of longer maturities more sensitive to current interest rates and inflation rates?

According to this website, the yields of TIPS of longer maturities are greater than that of TIPS of shorter maturities. It seems counterintuitive since yields of longer-maturity bonds, which are based ...
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Effect of change in discount rate on consumption — (Samuelson, 1958)

I was reading this paper by Paul Samuelson. I am puzzled by a bit on page 470, left column. Here he claims that $\frac{\partial C_3}{\partial R_{t+1}}>0$. Let me give a short description of what ...
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effective and annual interest rate compounded monthly?

I just started my Enginnering Economic and I met this question in my quiz PromInvest Inc. invested 5.5 million in a project ten years ago. As of today the worth of this project is 24.7 million. What ...
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Why does the Loanable Funds Market model use the real interest rate instead of the nominal interest rate?

As far as I understand, the majority of loan contracts specify a nominal interest rate, NOT a real interest rate. So a hypothetical loanable funds markets would have people suggesting potential ...
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Are coupons all semi-annual?

How do coupons get priced in together?
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Why do all/majority of loan contracts charge nominal interest rate instead of fixed real interest rate?

As far as I understand, all/majority of loan contracts charge nominal interest rate, there are (almost?) no loan contracts that charge fixed real interest rate. Why is it so? Normally I would expect ...
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Microeconomic rationale for UIP (uncovered interest rate parity)

The key idea behind UIP is that as for all common financial instruments, the "law of no free lunch" should also hold for currencies. However it differs from traditional replication-based no-...
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26 views

How do you benefit from a fall in interest rates in general as a creditor of public bonds?

I’m reading about England debt in 1819 and how interest rate benefited its creditors. The country had a public debt of more than 250% of the GDP. With peace at last achieved, London is faced with a ...
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What are the determinants of the natural rate of interest and how market rate converges to it?

I'd like to know how is determined the natural/neutral rate of interest. Moreover, how the market rate can converge to it ? If you have some references it would be great !
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Deflate level and flow variables using PPI and CPI

What do statements like Flow variables (such as dividend growth and returns) are deflated using the CPI index. or Level variables are deflated using the Producer Price Index (PPI). mean? What are ...
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Is Currency Devaluation a cause or effect of interest rates?

I understand that Federal bank/Goverment can manipulate the currency market and devalue its currency by printing more money or buying foreign currencies/assets (essentially increasing the supply of ...
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Why is sovereign rate a reference?

I would like to know why we always focus on 10 years sovereign rates when we talk about interest rates ? Let me clarify. I'm reading a paper from the Bank of England that emphasizes the fact that ...
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How to find the corresponding APR to a given APY?

Suppose that ​$6000 is invested in a 3​-month CD with an APY of 1.5​% I want to find the corresponding APR to a given APY. If 6000$ is invested in a 3​ month CD with an APY of 1.5​% then according to ...
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How penalties on repo fails work?

There are a couple of questions I have about imposing penalties on repo fails. Is the repo fail penalty imposed only on the seller of securities if it does not buy the securities back or also on the ...
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How is an interest swap collateralized

I am trying to understand what it means for an interest swap to be collateralized. If for example, I am paying fixed to a bank and receive floating in return. Who is giving collateral to whom? and how ...
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Is the money market model based on assumption of no interest rate targeting on the part of the central bank?

This is quote from Gregory Mankiw's macroeconomics text about mechanism of formation of the interest rate in the money market model: How does the interest rate get to this equilibrium of money supply ...
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Is there inverse relationship betweet prices of interest-bearing assets and the interest rate?

I was wondering about why investors converting out of interest-bearing assets into money in the money market cause the interest rate to increase. Then I remembered that there is inverse relationship ...
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Negative neutral real interest rate

What is the intuition behind having a negative neutral real interest rate?
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Quantitative easing and interest rate parity

Suppose a country initiates quantitative easing by printing money and buying government debt. This will put a downward pressure on interest rates. Will this action tend to depreciate the country's ...
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What are the differences between hedging with swaps, options or futures?

For instance if a bank wants to hedge against interest rate risk, it could use interest rate swaps, or options or futures contract. Or in any other example, when a manager is hedging against risks. ...
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56 views

Discount & Interest rates

Small question, is discount rates and interest rates the same/similar thing in economics? A bit confused regarding this.
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What determined the “cost of borrowing money” or the interest rate in a gold-based economy

In the modern economy, the central bank decides the cost of borrowing money using interest rates along with other several tools and technic. But I was wondering, in a gold-based economy (not the gold ...
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How does the federal funds rate compare to the federal discount rate?

The federal funds rate is the interest rate charged to banks when they borrow from each other overnight in the federal funds market to satisfy their reserve requirements. This rate is influenced by ...
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Interest rate determination in the real world

I have just learnt about the demand and supply framework for money and how the equilibrium interest rate in an economy can be determined. In theory, based on that framework, an increase in nominal ...
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58 views

Expected inflation in the real interest rate equation

Real interest rate = Nominal rate - Expected inflation In the above equation, in a quarterly data-set, which expected inflation shall be used? next quarter (q+1) or the same quarter of next year (q+4)...
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Effect of default risk on the interest rate of bonds

So I want to calculate the effect of default risk on the required interest of bonds (not on the price of bonds as that is normalized to one). I thought of using the consumption capital asset model ...
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Stabilizing Property of a Taylor Rule

Considering the New Keynesian Model we have the Phillips curve and dynamic IS curve in log-linearized form with price shock $u^{\pi}$ and demand shock $u^{IS}$ :$$\pi_t=\beta E_t\pi_{t+1}+\kappa(y_t-...

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