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QUESTION 8 An Repo implies that the lender receives a security for the time of the loan. Since the RBA accepts only high quality securities, this makes the Repo risk-free. Despite the low risk, the RBA usually charges more than the interbank rate because of the long duration of overnight loans. Despite the low risk, the RBA usually charges more than the interbank rate in order to deter banks from requesting an overnight ESF loan from the RBA Despite the low risk, the RBA usually charges more than the interbank rate because of the interest rate risk. Because of the low risk, the RBA usually charges less than the interbank rate. The interbank rate is for unsecured and therefore more risky loans.QUESTION 9 You are having a conversation with your European business partner. She tells you the EUR fixed interest rate for 5 years is 1% and is shocked when you inform her that in Australia the 5-year fixed rate is 3.5%. Your 5-year estimate for the EUR inflation rate is 196 and for Australia 3%. Ausstrandisshockedwhen inflation rate is 1% You tell your business partner to borrow as much as possible in Europe and to use the money to buy Australian government bonds, which have a risk free return of some 3%. Adding inflation to the rates they are 196+1%-2% in Europe and 3.5%+3%-6% in Australia. Therefore, you are even more shocked than your business partner You ask your business partner if she can give you any hints how to get a mortgage in Europe to refinance your Australian house You tell your business partner that the economic conditions differ and that the real interest rates are much more similarQUESTION 10 Lets assume the banking system in Europe got into some trouble and banks start making large losses and their solvency risk is increasing. You know that most European banks assets have a longer duration than their liabilities. Which is the best option for the European Central Bank (ECB) to make banks more profitable again? The ECB could buy large amounts of short-term and long-term bonds to steepen the yield curve The ECB could buy large amounts of short-term and sell some long-term bonds to steepen the yield curve The ECB could buy large amounts of long-term bonds to steepen the yield curve. The ECB could sell large amounts of short-term and buy long-term bonds to steepen the yield curve.

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Question 9)

Option D: Because of low risk, The RBA usually charges less than the interbank rate is for unsecured and therefore more risky loans.

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