The swap spread is the difference between the swap rate and the equivalent-maturity Treasury bond yield. Explain why a widening swap spread may be a signal of deteriorating economic conditions. Plot since 2000 the difference between the five-year swap rate (FRED code: MSWP5) and the five-year Treasury yield (GS5). Interpret the evolution of this five-year swap spread since July 2007.
Answer to relevant QuestionsRisk-averse investors care greatly about asset price volatility. Using the FRED “Notes” about the data series, briefly define the (VIX) Volatility Index (FRED code:VIXCLS) of the Chicago Board Options Exchange (CBOE). ...Can purchasing power parity help predict short-term movements in exchange rates?Consider again the situation described in Problem 13 where China decided to allow the yuan to float. What would you expect to happen toa. U.S. exports to Chinab. U.S. imports from Chinac. the U.S. trade deficit with ...Exchange rates can experience sudden changes as well as long-run patterns. a. Plotthe U.S. dollar-Australian dollar exchange rate (FRED code: EXUSAL) without recession bars and identify long-run swings and short-term spikes. ...Deflation causes the value of a borrower’s collateral to drop. Define deflation and explain how it reduces the value of a borrower's collateral. How might a lender who anticipates deflation alter the terms of a loan?
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