H the bank of canada determines very short term

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H The Bank of Canada determines very short term interest rates through its influence on the overnight rate. H All other interest rates are determined by market forces. Where supply of lending matches demand for borrowing. 11
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12 The Term Structure of Interest Rates and the Yield Curve H When we calculated the present value of an annuity using the PV Annuity Formula, we assumed that we could apply the same interest rate to all future annuity payments, whether they were one year from now or 30 years from now. H When you look at interest rates that banks offer on financial investments or charge for loans, you will notice that they depend on the horizon (or term ) of the investment or loan. H The relationship between the investment term (time to maturity) and the interest rate on zero-coupon Government bonds is called the Term Structure of Interest Rates . H The graphical representation of the term structure is called the Yield Curve .
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13 Yield Curve Shapes
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14 How to Dismantle a Yield Curve H What accounts for the fact that the shape of the yield curve changes all the time?
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