How would economic transactions between suppliers of funds (e.g., households) and users of funds (e.g., corporations) occur in a world without FIs?
Answer to relevant QuestionsWhy would a world limited to the direct transfer of funds from suppliers of funds to users of funds likely result in quite low levels of fund flows?What should happen to a security’s equilibrium interest rate as the security’s liquidity risk increases?The Wall Street Journal reports that the rate on 4-year Treasury securities is 1.60 percent and the rate on 5-year Treasury securities is 2.15 percent. According to the unbiased expectations theories, what does the market ...A 2-year Treasury security currently earns 1.94 percent. Over the next two years, the real risk free rate is expected to be 1.00 percent per year and the inflation premium is expected to be 0.50 percent per year. Calculate ...Assume the current interest rate on a 1-year Treasury bond (1R1) is 4.50 percent, the current rate on a 2-year Treasury bond (1R2) is 5.25 percent, and the current rate on a 3-year Treasury bond (1R3) is 6.50 percent. If the ...
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