Finc412 Chapter 2 Hw Study Guide Graded A+

Global Interaction of Interest Rates. Why might you expect interest rate movements of various industrialized countries to be more highly correlated in recent years than in earlier years? {Ans: Interest rates among countries are expected to be more highly correlated in recent years because financial markets are more geographically integrated. More international financial flows will occur to capitalize on higher interest rates in foreign countries, which affects the supply and demand conditions in each market. As funds leave a country with low interest rates, this places upward pressure on that country's interest rates. The international flow of funds caused this type of reaction.}Forecasting Interest Rates. Why do forecasts of interest rates differ among experts? {Ans: Various factors may influence interest rates, and changes in these factors will affect interest rate movements. Experts disagree about how various factors will change. They also disagree about the specific influence these factors have on interest rates.}Interest Elasticity. Explain what is meant by interest elasticity. Would you expect federal government demand for loanable funds to be more or less interest-elastic than household demand for loanable funds? Why? {Ans: Interest elasticity of supply represents a change in the quantity of loanable funds supplied