#1
Which of the following is NOT a factor affecting interest rates?
Foreign exchange rates
ExplanationForeign exchange rates do not directly impact interest rates.
#2
What happens to interest rates when the central bank increases the money supply?
Interest rates decrease
ExplanationAn increase in the money supply by the central bank leads to a decrease in interest rates.
#3
Which term refers to the interest rate that banks charge their most creditworthy customers?
Prime rate
ExplanationThe prime rate is the interest rate charged by banks to their most creditworthy customers.
#4
Which of the following is NOT a tool of monetary policy used by central banks to influence interest rates?
Treasury bill auctions
ExplanationTreasury bill auctions are not a direct tool of monetary policy for influencing interest rates.
#5
Which of the following is a characteristic of a fixed-rate mortgage?
The interest rate remains constant for the entire loan term
ExplanationA fixed-rate mortgage has a constant interest rate throughout the entire loan term.
#6
What is the term for the rate at which banks lend money to their most creditworthy customers?
Prime rate
ExplanationThe prime rate is the rate at which banks lend money to their most creditworthy customers.
#7
Which term refers to the interest rate banks charge each other for overnight loans?
Federal funds rate
ExplanationThe interest rate for overnight loans between banks is known as the federal funds rate.
#8
What effect does high inflation typically have on interest rates?
Interest rates increase
ExplanationHigh inflation tends to lead to an increase in interest rates.
#9
What is the relationship between bond prices and interest rates?
Bond prices and interest rates move in opposite directions
ExplanationBond prices and interest rates have an inverse relationship, moving in opposite directions.
#10
What is the term for a situation where short-term interest rates are higher than long-term rates?
Inverted yield curve
ExplanationAn inverted yield curve occurs when short-term interest rates exceed long-term rates.
#11
What impact does a decrease in the money supply typically have on interest rates?
Interest rates increase
ExplanationA decrease in the money supply generally leads to an increase in interest rates.
#12
What is the term for the interest rate that a bondholder receives if the bond is held until maturity?
Yield to maturity
ExplanationYield to maturity is the interest rate earned on a bond held until its maturity date.
#13
What is the Fisher effect in relation to interest rates?
An increase in inflation leads to a proportionate increase in nominal interest rates
ExplanationThe Fisher effect describes the relationship between inflation and nominal interest rates.
#14
What does the term 'liquidity trap' refer to in the context of interest rates?
A situation where interest rates are so low that monetary policy becomes ineffective
ExplanationA liquidity trap occurs when very low interest rates render traditional monetary policy ineffective.