CH00-INTRO - Borrow short-term Interest rates may rise...

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Intro-1 Debt Markets Prof. Miles Livingston University of Florida
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Intro-2 Introduction Empirical Patterns
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Intro-3
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Intro-4
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Intro-5 Interest Rates Since 1931 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 Jan-31 Jan-39 Jan-47 Jan-55 Jan-63 Jan-71 Jan-79 Jan-87 Jan-95 Jan-03 Year Percent Over 10 Maturity (Historical) 90 Day T-Bill Auction High (Historical)
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Intro-6 Interest Rates and the Business Cycle Time Output Contraction Interest rates Expansion
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Intro-7 Efficient Market Hypothesis Price ($) New Positive Information Time Under-adjustment Efficient Market Over-adjustment Public information is rapidly reflected in security prices. Driving force: Competition for profits.
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Intro-8 Strategies of Borrowers Borrower’s Best What can forecast strategy go wrong High current Borrow short-term,
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Unformatted text preview: Borrow short-term, Interest rates may rise interest rates and roll-over loan and new loan is at higher interest rates Low current Borrow long-term, Interest rates may fall interest rates locking-in the and the opportunity interest rate to borrow at lower rates is lost Intro-9 Strategies of Lenders Lender’s Best What can forecast strategy go wrong High current Lend long-term, Interest rates may rise interest rates and lock-in high and opportunity to lend interest rate at higher interest rate is lost Low current Lend short-term, Interest rates may fall interest rates expecting to roll-and the loan must be over at higher rolled-over at a lower future interest interest rate rates...
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