Describe how interest rate changes affect the savings rate in the United States. How do banks...
Describe how interest rate changes affect the savings rate in the United States. How do banks adjust interest rates on deposits and loans?
Homework Answers
Theoretically, an increase in interest rates makes saving more attractive and encourages savings. Decrease in interest rates reduces the benefits of saving and discourages saving.
But, in the practical world, with several factors affecting the rate of saving together, the relation between interest rates and saving becomes unclear.
Banks usually determine the interest rate they pay for deposits and charge for loans based on several factors. These are influenced by competition, market levels of various interest rates and the Government policies. The Federal Bank influences interest rates by declaring certain discount rates, and reserve requirements. This intervention by the Federal Bank is called monetary policy and the motive for this intervention is to influence the economic activity, as well as the overall safety of banking system. All market-based countries use similar monetary policy in their economies.
Other factors that influence banks are inflation levels, the demand for money throughout the USA, stock market levels, general economic factors etc.
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Describe how interest rate changes affect the savings rate in
the United States. How do banks...
Suppose that bank AAA offers an interest rate of 6.5% on both savings and loans, and...
Suppose that bank AAA offers an interest rate of 6.5% on both savings and loans, and another bank, Bank BBB, offers an interest rate of 8.3% on both savings and loans. What profit opportunity is available? Which bank would experience a surge in the demand for loans? Which bank would receive a surge in deposits? What would you expect to happen to the interest rates the two banks are offering?
In 1975, interest rates were 7.84% and the rate of inflation was 12.39% in the United States. What was the real interest rate in 1975? How would the purchasing power of your savings have changed over the year?
In 1975, interest rates were 7.84% and the rate of inflation was 12.39% in the United States. What was the real interest rate in 1975? How would the purchasing power of your savings have changed over the year?
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Isn't it -0.95 percent??? 30) In 2016 the nominal interest rate paid by banks on savings...
Isn't it -0.95 percent???
30) In 2016 the nominal interest rate paid by banks on savings deposits was 0.55 percent. At the same time the inflation rate was 1.5 percent. What was the real interest rate paid on savings? A)-2.05 percent B) -1.05 percent C) 0.55 percent D) 3.10 percent E) 2.05 percent
Can you find the following for the United States Series EE Savings Bonds:The current rate, the...
Can you find the following for the United States Series EE Savings Bonds:The current rate, the minimum purchase, the maximum purchase, the available denominations and describe how you would purchase such a savings bond?
a) Show the changes to the balance sheets for commercial banks when the Federal Reserve buys...
a) Show the changes to the balance sheets for commercial banks when the Federal Reserve buys $50 million in us Treasury Bills. If the public holds a fixed amount of currency (so that all loans create an equal amount of deposits in the banking system , the minimum reserve requirement is 5%, by how much will checkable bank deposits in commercial banks change? b) Now suppose that the Fed raises the discount rate significantly. How would you expect this to...
1.)To which of the following does the Fed, as used in the United States, refer? A.The...
1.)To which of the following does the Fed, as used in the United States, refer? A.The country’s central bank B.The federal government C.The Treasury Department D.The Federal Deposit Insurance Corporation 2.)If a bank’s assets and its liabilities are equal, the bank is said to be _______. A.maximizing its profit B.insolvent C.fully utilizing its resources D.in balance 3.)The possibility that borrowers will not be able to repay their loans on time or in full is known as ________ risk. A.liquidity B.credit...
Not yet graded / 15 pts Question 3 Describe covered interest rate arbitrage and describe why...
Not yet graded / 15 pts Question 3 Describe covered interest rate arbitrage and describe why it tends to align interest rates across the globe. Use the United States and Great Britain as the two nations that might have different interest rates. Suppose interest rates are higher in the U.K. than in the U.S. Describing specifics, how would someone engage in covered interest arbitrage? Interestingly, I just said in the above question that interest rates are NOT aligned. How do...
In 1975. Interest rates were 7.85% and the rate of inflation was 120% in the United...
In 1975. Interest rates were 7.85% and the rate of inflation was 120% in the United States. What was the real interest rate in 1975? How would the purchasing power of your savings have changed over the year? What was the real interest rate n 1975? There we of Imerestis . Round two decimal places)
Isn't it -0.95 percent???
30) In 2016 the nominal interest rate paid by banks on savings deposits was 0.55 percent. At the same time the inflation rate was 1.5 percent. What was the real interest rate paid on savings? A)-2.05 percent B) -1.05 percent C) 0.55 percent D) 3.10 percent E) 2.05 percent
a) Show the changes to the balance sheets for commercial banks when the Federal Reserve buys $50 million in us Treasury Bills. If the public holds a fixed amount of currency (so that all loans create an equal amount of deposits in the banking system , the minimum reserve requirement is 5%, by how much will checkable bank deposits in commercial banks change? b) Now suppose that the Fed raises the discount rate significantly. How would you expect this to...
Not yet graded / 15 pts Question 3 Describe covered interest rate arbitrage and describe why it tends to align interest rates across the globe. Use the United States and Great Britain as the two nations that might have different interest rates. Suppose interest rates are higher in the U.K. than in the U.S. Describing specifics, how would someone engage in covered interest arbitrage? Interestingly, I just said in the above question that interest rates are NOT aligned. How do...
In 1975. Interest rates were 7.85% and the rate of inflation was 120% in the United States. What was the real interest rate in 1975? How would the purchasing power of your savings have changed over the year? What was the real interest rate n 1975? There we of Imerestis . Round two decimal places)
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