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The term structure shows the expectations of the participants regarding interest rate changes and the way they will assess monetary policy conditions. It plays a vital role in economy and is also known as yield curve.

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A normal term structure of interest rates would depict?

long-term rates higher than short-term


Why is fixed deposit account not a normal account?

A fixed deposit account is not considered a normal account because it requires the account holder to deposit a specific sum of money for a predetermined period, during which withdrawals are typically not allowed without penalties. Unlike regular savings or checking accounts that offer flexibility for deposits and withdrawals, fixed deposit accounts provide higher interest rates in exchange for the commitment to keep the funds locked in for the agreed term. This structure makes them more suited for individuals looking for guaranteed returns rather than everyday banking needs.


Why might a saver choose a certificate of deposit over a passbook savings account?

A saver might choose a certificate of deposit (CD) over a passbook savings account because CDs typically offer higher interest rates in exchange for locking funds away for a fixed term. This can result in greater returns on savings. Additionally, CDs often have less variability in interest rates, providing more predictability for long-term savings goals compared to the usually lower rates of passbook accounts. However, it's important for the saver to consider their liquidity needs, as withdrawing funds from a CD before maturity often incurs penalties.


How do you calculate incremental borrowing rate?

The incremental borrowing rate (IBR) is the interest rate a company would have to pay to borrow funds over a similar term and with similar security to the lease obligations. To calculate it, consider factors such as the prevailing market interest rates, the company's credit rating, and the terms of the lease. Typically, companies use their existing borrowing rates for loans or bonds as a basis, adjusting for the risk associated with the lease terms. If available, consult with financial institutions for rates on similar borrowings to ensure accuracy.


What is deposit at call?

A deposit at call is a type of short-term investment account where funds can be deposited and withdrawn on demand, typically without notice. It offers liquidity and flexibility, making it suitable for individuals or businesses that may need immediate access to their funds. While interest rates on these deposits may be lower than fixed-term investments, they provide a secure way to earn some interest while keeping funds readily accessible.

Related Questions

A normal term structure of interest rates would depict?

long-term rates higher than short-term


When the term structure of interest rates is downward sloping and interest rates are expected to decline?

financial manager generally borrows short-term


What does the term structure of interest rates indicate?

The term structure of interest rates is often referred to as a yield curve. It shows the relative level of short-term and long-term interest rates at a point in time. Knowledge of changing interest rates and interest rate theory is extremely valuable to corporate executives making decisions about how to time and structure their borrowing between short- and long-term debts. the yield curve indicates the movements of interest rates. For example, a downward curve indicates that the interest rate will fall in the future. these signals help firms to manage their debt structure.


What has the author Jae Won Park written?

Jae Won Park has written: 'Changing uncertainty and the time-varying risk premia in the term structure of nominal interest rates' -- subject(s): Econometric models, Interest rates, Bonds 'The information in the term structure of interest rates' -- subject(s): Interest rates, Forecasting


The theory of the term structure of interest rates which suggests that long-term rates are determined by the average of short-term rates expected over the time that a long-term bond is outstanding is?

expectations hypothesis


What has the author K A LLoyd written?

K. A. LLoyd has written: 'The term structure of interest rates in New Zealand, 1977-1985' -- subject(s): Interest rates


What is the best definition of the term structure?

In finance, the term structure refers to the relationship between the maturity of a debt instrument, such as a bond, and its yield or interest rate. It describes how the yield curve slopes, indicating the interest rates at different maturities. The term structure is an essential indicator for investors and policymakers to assess market expectations about future interest rates and economic conditions.


Discuss the relative volatility of short- and long-term interest rates?

short- and long-term interest rates usually move in the same direction. Yield curve is often upward, so, long-term interest rates are usually higher than short-term interest rates. short-term interest rates are often more fluctuating than long-term rates.


What has the author Pierluigi Balduzzi written?

Pierluigi Balduzzi has written: 'The central tendency' -- subject(s): Bonds, Econometric models, Interest rates, Prices 'A model of target changes and the term structure of interest rates' -- subject(s): Interest rates, Mathematical models


Are interest rates on long term bonds usually lower or higher than interest rates on short term bonds?

Higher


What has the author Robert Edwin Brooks written?

Edwin Robert Brooks has written: 'Empirical analyses of the term structure of interest rates' -- subject(s): Interest rates, Treasury bills


What would happen to real short term interest rates if the Fed kept short term market interest rates at zero and deflation occurred and was expected to continue?

Macroeconomics Question: What would happen to real short term interest rates if the Fed kept short term market interest rates at zero and deflation occurred and was expected to continue?