Contrary to the exuberant economic forecast described in problem 11, suppose a bank’s economics department is forecasting a significant recession in economic activity. Output and employment are projected to decline significantly over the next 18 months. What are the implications of this forecast for an investment portfolio manager? What is the outlook for interest rates and inflation under the foregoing assumptions? What types of investment securities would you recommend as good additions to the portfolio during the period covered by the recession forecast and why? What other kinds of information would you like to have about the bank’s current balance sheet and earnings report in order to help you make the best quality decisions regarding the investment portfolio?

  • CreatedOctober 31, 2014
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