When there is a run on a bank, this bank is facing ___ risk
-inflation
-interest rate
-operational
-liquidity
Option D
When there is a run on a bank, this bank is facing ___ risk -inflation -interest...
\ The term structure of risk free interest rates reflects the: interest rate risk inflation risk liquidity risk all of the above
Bond ratings classify bonds based on: interest rate, inflation rate, and default risk. liquidity, interest rate, and default risk. liquidity, market, and default risk. default risk only. default and liquidity risks.
1. When a bank tries to make a wide variety of loans, to various kinds of borrowers, it is hoping to reap the benefit of: A. guaranteed income B. diversification C. more firm-specific risk exposure D. reduced operational risk E. reduced off-balance-sheet risk 2. In 2005, Argentina offered its creditors 30 cents on the dollar for a sizeable amount of its outstanding debt. The offer was nonnegotiable. Clearly, Argentina’s creditors were exposed to ______________ risk. A. sovereign B. operational C. ...
What is the relationship between a bank run and liquidity risk? (15 marks )
Which of the following equations is NOT correct? Quoted rate = quota risk-free rate + default risk premium + liquidity premium + maturity risk premium Quoted interest rate minus real risk-free rate = Inflation premium Maturity risk premium + marketability premium = Nominal rate minus quoted risk-free rate Maturity risk premium + marketability premium + default risk premium = Nominal rate minus quoted risk-free rate You are the chief financial officer (CFO) of a regional bank in New Orleans. As you...
Knowing the Fundamentals of interest rates and knowing that rates are impacted by inflation, risk concerns, and liquidity concerns. Based on your understanding of those fundamentals, explain why the interest rate on a 3 month Treasury Bill is 1.50% while the interest rate on a 10-year bond issued by a very risky Company might be 8%.
The real risk-free rate of interest is expected to remain constant at 2.5%. The inflation rate is expected to be 3% (Year 1), 4.2% (Year 2), and 4.6% thereafter. The maturity risk premium (MRP) is equal to 0.079(t-1)%, where t-the bond's maturity. A 4-year corporate bond yields 8%, what is the yield on a 10-year corporate bond that has the default risk and liquidity premiums 1% higher than that of the 4-year corporate bond? The real risk-free rate of interest...
Given the following information, Real risk-free rate = 0.025 Inflation risk premium = 0.015 Maturity risk premium = 0.05 Default risk premium = 0.035 Liquidity risk premium = 0.01 (1) Using approximation method, what is the real rate of interest? (2) Using Fisher equation, what is the real rate of interest?
32. The credibility of the central bank: a. promotes long-run growth. b. is irrelevant for controlling inflation. c. is crucial for controlling inflation and stabilizing output d. promotes sensible fiscal policy. e. implies low interest rates. 33. You are the head of the central bank and you want to maintain 2 percent long-run inflation, using the quantity theory of money. If the real GDP growth is 4 percent and velocity is constant, you suggest a: a. 6 percent interest rate...
4. Suppose that for all securities, the inflation risk premium is 2.15 percent and the real interest rate is 3.80 percent. A particular security's default risk premium is 1.54 percent and its liquidity risk premium is 0.78 percent. If the security has no special covenants and its maturity risk premium is 1.35 percent, what is the security's equilibrium rate of return? A. more than 10.50 percent B. more than 10.15 percent but less than 10.50 percent C. more than 9.80...