Understanding Interest Rate Dynamics Quiz

The Federal funds rate is the rate at which banks lend to each other overnight.

The prime rate is the rate banks charge their most creditworthy customers.

The Federal funds rate is the rate at which banks charge each other for short-term loans.

Credit risk refers to the risk of borrower default.

The discount rate is the rate at which the Federal Reserve lends money to banks.

The subprime rate is the rate charged to the least creditworthy customers by banks.

Stock market performance often precedes changes in interest rates.

Bond prices typically move inversely to interest rates.

Inflation typically leads to higher interest rates.

An increase in interest rates typically decreases bond prices.

Interest rate risk refers to the risk of declining bond prices due to rising interest rates.

Higher interest rates often mitigate inflationary pressures.

Exchange rates do not directly influence interest rates.

Stabilizing foreign exchange rates is not typically a reason for the Federal Reserve to change interest rates.

Yield curve inversion occurs when short-term interest rates exceed long-term rates.

Decreasing bond yields typically do not cause interest rates to rise.

During an economic recession, the yield curve often becomes inverted.

Central banks typically do not engage in direct lending to consumers to influence interest rates.