Topic 3, Exercise 1 Interest Rates and Inflation One of the key functions of the financial markets is to allocate capital to different borrowers. The rates that are charged in the markets are a function of the risk of the particular borrowers and also on the rates of inflation present in the borrower's market. The base rate for a particular country is the rate at which the central banks can borrow. From that base rate, interest rates are adjusted for risk of individual firms. The premium or spread above the base rate depends on economic conditions. The base rate is affected by the expected inflation in a country. To complete this exercise, you will need to assess information on borrowing rates for government debt at Bloomberg.com: Government Bonds . Secure the rates on government bonds for Japan, Canada and the United Kingdom. Once you have located the rates for
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