FINANCIAL
MARKETS AND INTEREST RATES 2-19
PROGRESS CHECK 2
(Continued)
4.
Select two basic market characteristics that influence the level of interest rates.
_____ a) Investors' expected rate of return
_____ b) Fees charged by brokers and dealers
_____ c) Government intervention and regulation
_____ d) Preference of potential investors for consumption versus savings
_____ e) Efficiency of the capital allocation price system
5.
The offered rate of interest reflects the pure interest rate plus:
_____ a) an investment premium (IP) to account for opportunity cost.
_____ b) a premium for investment costs plus a rate premium (RP) for profit.
_____ c) a premium for the expected future rate of inflation plus a premium for
counterparty, liquidity, and interest rate risk.
_____ d) compensation for assuming risk plus a premium based on the current
rate of inflation.
6.
When planning their investment / borrowing strategies, investors and issuers look at
the yield curve representing the term structure of interest rates to:
_____ a) determine their preference for long-or short-term securities.
_____ b) predict future rate fluctuations.
_____ c) view the historical movement of interest rates over a given period of
time.
_____ d) determine the shape of future market movements.