Course 2 Flashcards
What are the main factors that influences interest rate?
- Inflation ;
- Moneytary Policies ;
- economic growth
What are the main factors that impact inflation?
Directly measures of inflation:
- Consumer prices (retail)
- Producer prices (wholesales)
Definition of inflations and it consequences.
Inflations is the rise of global prices in a country or world.
Consequences: low purchasing from consumers.
Definition of deflation and it consequences.
The deflation is when the global prices are going down.
Consequences: Wages are going down, rise of unemployment.
What are the two main objectives of Central Banks?
- Stability prices
- Substainable Enconmic growth
(In the US Central Bank = FED and In Euro Zone = ECB)
What’s a central bank and the offcial rate?
CB are the main referances of every commercial banks.
It has the responsility of setting up the official rate, regulating money supplies and interest rates.
Official rate is define by the amount of money that the CB send it to commercial banks, in rates.
What happend when the offcial rate rises (Central banks))?
When the offcial rate rises:
-> it means that commercial banks have to borrow from CB at a high prices which lead to hight interest rate (from commercial banks) for costumers and businesses
What happend when the official rate goes down (Central Banks)?
When it goes down, it means that commercial banks borrow money from CB at a low prices which can lead to a low interest rates for costumers and Businesses.
How is money created?
- Money is created when costumers or banks are borrowing money from banks.
- Fractional Reserve requirement
Traditionnal monetary policy vs non standard monetary policy. explain.
Traditionnal monetary policies include:
- Adjusment of interest rate,
- open market operations,
- setting bank reserve requirements.
non standard monetary policies include :
- Easing Foward and Quantitive guidance,
- Negative interest rates.
- collateral adjustments
Use of these policies exemple:
during 2008 financial crises, CB added the non-standard monetary policies with the orginal traditionnal monetary policies.
What’s a foward rate?
It’s the prediction of the interest rate in the future at a precised point of time (Y1, Y2, etc…)
What is the Foward rate formula?
(1+Sn)^n = (1+Sm)^m * (1+Fn-m,m)^n-m
Whats a yield curve?
Is the graphical representation of interest rate or yoeld that gouverment pays you the maturity dates.
The view of yield curve depend on who?
The yield curve is relative depending on a seller or buyer
What’s a normal yield curve? And what does it indicate about the economy?
A normal yield curve is when the interest is low in a short maturity date and high interest rate in a long maturity date.
Economical situation: the gouverment issues low to high interest rate, it indicates the stability of the economy.
