Topic_22_E2 - Topic 22, Exercise 2 Cash Management In a...

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Topic 22, Exercise 2 Cash Management In a recent article entitled, “Strategic Treasury: Short-term Investing and Borrowing when Interest Rates Fall,” Karen Kroll discusses some issues about attempting to manage borrowing and lending in a dynamic environment. She uncovers some patterns in the movements of short-term interest rates and suggests way that these movements can be used to enhance returns or lower borrowing costs. After reading this article, answer the following questions: 1. What is a yield curve and how could the shape of the yield curve affect returns or borrowing costs? A yield curve is a graphic display of the relationship between interest rates and maturity. When a yield curve is upward sloping—referred to as a normal curve—short-term rates are lower than long-term rates. When the curve is inverted, short-term rates are higher than long-term rates. The shape of the curve will affect the relative costs of borrowing or investing in short- versus long-term instruments. When the yield curve is inverted, there
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This note was uploaded on 09/13/2011 for the course FIN 6301 taught by Professor El-asmawanti during the Fall '09 term at University of Texas at Dallas, Richardson.

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Topic_22_E2 - Topic 22, Exercise 2 Cash Management In a...

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