Question

IV.Caleslat The inerest rate on usecured loans between bnks is called the do 1 Adoume dhe repurchase rate Thill ate dral fnds rate. d Using percen 1 A bank nn involves a a failure bya bank to get the maximum return on its investments large numbers of depositors withdrawing their deposits in a short period of time a bank being forced into receivership. c. d. fraud on the part of a bank's management. 20 points) IL Explanation of Terms 1. Credit risk 5 points (4 questions 2. Term structure of interest rate iT 3. Basel Accord 4. Continuously compounding interest rate IIL Brief answers (2 questions 10 points-20 points) I. Given other factors unchanged, how does YTM(Yield to Maturity) change with the bond's secondary market price, why? equilibrium interest rate of bond market and 2. If inflation decreases, what's the new why?

Answer 1

9. The interest rate on unsecured loans between banks is called the:

• federal funds rate.

10. A bank run involves:

• (b.) large numbers of depositors withdrawing their deposits in a short period of time.

ll. Explanation of Terms

1. Credit risk: Credit risk is a situation where lender face risk of Credit from borrower side due non repayment of required amount of money borrowed.

2. Term structure of interest rate: Term structure of interest rate tells that "Term" and "interest rate" are related with each other with having more or less equal risk with terms of that particular bond.

3. Basel Accord: There are three Basel Accord -I,II,III. Which provides information related with banking regulation by Basel Committee On Banking Supervision.

4. Continuously compounding interest rate: Continuously compounding interest rate is a situation where there is Continuous interest on the principal amount and interest on interest received.