Second Research Paper - Viet Viet Hoang Dr Spencer Economic...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Viet Viet Hoang Dr. Spencer Economic 2301-002 03 March 2009 Interest Rate When the Federal Reserve System announced the new about its new proposal of long term borrowings, a lot of comments were raised discussing about its advantages and disadvantages. According to an article in Fortune magazine, “Pain Now, Pleasure Later”, reporter Allan Sloan gave us the briefly idea of his opinion about this plan. Before this announcement of the Fed, we were familiar with the short-term borrowings package which was very low. We only have 0.2% interest for 30 days borrowing Treasury, and 0.4% interest for six months borrowing Treasury (Pain). That kind of interest was low; nevertheless, a lot of investors still bought it due to its safe quality – they could always get their money back without the afraid of losing their money when the banks they had deposited their money went bankrupt. In the need of money to revitalize the bad economy right now, the Fed gave out the long- term Treasury with the higher rate of interest but with pretty long time of holding people money – up to 30 years with the interest of 3.6% per year (Pain). By increasing the interest rate for this long-term Treasury to make people feel they take advantage over the inflation, the Fed wanted to attract more people to buy more Treasuries so they could collect more money in order to recover the hurting economy. However, there was a small but not impossible chance that the Fed will not gather enough buyers such as the British did, and their currency would lose the top place.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Viet On the other hand, the long-term Treasury (30-year T-bond) is more convenient than short-term Treasury in the way we rollover it – 30 years rollover-free compare with just one or 6 months rollover (Pain). So there is a confident result that the Fed will have the great amount of people buying the T-bond. Plus, there is a positive chance that the short rate will boost up to 4% and the long-term Treasury up to 7% in next few years (Pain).
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern