1.8 Interest Rates Determinants

1.8 Interest Rates Determinants - Click to edit Master...

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Unformatted text preview: Click to edit Master subtitle style 8/29/2010 H Toprac You cannot escape the responsibility of tomorrow by evading it today Abraham Lincoln Click to edit Master subtitle style 8/29/2010 H Toprac Foundations of Finance Interest Rates Determinants 9/15/2010 H Toprac 8/29/2010 H Toprac 3 The risk-free rate of interest: rRF T-Bills Bonds Preferred Stock Common Stock Return Risk rR F 9/15/2010 H Toprac The Federal Reserves monetary policy The foreign trade balance The federal budget balance The inflation rate The general level of economic activity 8/29/2010 H Toprac 4 Factors that influence rRF 9/15/2010 H Toprac Interest rates rise (inflation & GDP fall) when the Fed tightens/decreases the money supply by: Raising the reserve requirement, Raising the discount rate, or Selling Treasury securities Interest rates fall (inflation & GDP rise) when the Fed loosens/increases the money supply 8/29/2010 H Toprac 5 Fed monetary policy impacts rRF 9/15/2010 H Toprac Foreign trade balance = Exports Imports Jan to Jul 2010: Exports $1,044B Imports $1,333B = Surplus/ (Deficit) $(289)B Foreign trade deficits decrease the money supply, thus increase interest rates 8/29/2010 H Toprac 6 Foreign trade balance impacts rRF 9/15/2010 H Toprac Federal budget balance = Receipts Outlays Actuals in billions: 2000...
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This note was uploaded on 12/30/2010 for the course MIS 302f taught by Professor Staff during the Spring '08 term at University of Texas at Austin.

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1.8 Interest Rates Determinants - Click to edit Master...

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