CH2 - Spring 2011

CH2 - Spring 2011 - DETERMINANTS OF INOMINAL INTEREST RATE...

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DETERMINANTS OF NOMINAL INTEREST RATE INTEREST RATES OBSERVED IN FINANCIAL MARKETS
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TIME VALUE OF MONEY PRESENT VALUE FUTURE VALUE FIN3850
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LOANABLE FUNDS THEORY SUPPLY AND DEMAND FOR LOANABLE FUNDS EQUILIBRIUM INTEREST RATES QUANTITY OF LOANABLE FUNDS SUPPLIED INCREASES AS INTEREST RATES INCREASE (SEE FIG 2-10) SUPPLIERS OF LOANABLE FUNDS
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LOANABLE FUNDS THEORY QUANTITY OF LOANABLE FUNDS DEMANDED INCREASES AS INTEREST RATES DECREASE (SEE FIG 2-10) DEMAND FOR LOANABLE FUNDS HOUSEHOLDS, BUSINESSES, GOVERNMENTS, FOREIGN INVESTORS
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FACTORS THAT AFFECT SUPPLY OF FUNDS WEALTH (+) RISK (-) NEAR-TERM SPENDING NEEDS (-) MONETARY EXPANSION (+) DEMAND FOR FUNDS UTILITY FROM ASSETS PURCHASED (+) NONPRICE RESTRICTIONS (-)
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FACTORS AFFECTING INFLATION DEFAULT RISK LIQUIDITY RISK SPECIAL PROVISIONS TERM TO MATURITY
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INFLATION INFLATION RATE = (P1 – P0) ÷ P0 POSITIVE RELATIONSHIP BETWEEN INTEREST RATES AND INFLATION RATES REAL INTEREST RATE RELATIVE TIME PREFERENCE FOR CURRENT CONSUMPTION (NO INFLATION, NO DEFAULT RISK)
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This note was uploaded on 02/23/2011 for the course FIN 3080 taught by Professor Mercadose during the Spring '10 term at UCM.

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CH2 - Spring 2011 - DETERMINANTS OF INOMINAL INTEREST RATE...

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