Question

Financial frictions are often described in terms of an “interest-rate spread” between a standard government debt...

Financial frictions are often described in terms of an “interest-rate spread” between a standard government debt (like the 3-month or 10-year treasury bonds) and private debt (like commercial paper, BAA bonds etc.). When would this “interest-rate spread” be high or low? Why?

Homework Answers

Answer #1

Studies reveal that bank-specific factors play a considerable role in the determination of ‘interest- rate spreads’. These consist of bank size, return on average assets, credit risk as gauged by non-performing loans to overall loans ratio & operating expenses, all of which positively impact interest -rate spreads. On the other hand, greater bank liquidity ratio has an adverse impact on the spreads. On an average, large banks have greater spreads compared to the smaller ones . The effect of macroeconomic factors like actual economic growth is unimportant. The impact of the monetary strategy rate is positive but not very significant. The outcomes mainly reflect the banking sector's structure, in which a few large banks control a considerable market share.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Which bond should have the highest interest rate? A. Low quality bonds B. Medium quality bonds...
Which bond should have the highest interest rate? A. Low quality bonds B. Medium quality bonds C. High quality bonds Which of the following statements is NOT true? A. Stock owners benefit from stock price increases B. Common stocks are not securities C. Stock prices tend to be very volatile D. Higher stock prices allow companies access to more capital What is the expected impact of a decline in the money supply to the US economy? A. Lower aggregate prices...
Q2: Some economists suspect that one of the reasons that economies in developing countries grow so...
Q2: Some economists suspect that one of the reasons that economies in developing countries grow so slowly is that they do not have well-developed financial markets. Does this argument make sense? Q3. When interest rates fall, how might you change your economic behavior? Q4: Why are financial markets important to the health of the economy? Q5: When the American dollar worth more in relation to currencies of other countries, would an American be more likely to buy American-made or foreign-made...
1-What is the typical relationship between interest rate on three-month Treasury bills and on interest rate...
1-What is the typical relationship between interest rate on three-month Treasury bills and on interest rate on corporate bond and growth rate of money supply. 2- If history repeat itself and we see a decline in the rate of money growth, what might you expect to happen to Budget deficit The inflation rate 3- How does an increase in the value of the Israeli shekel affect American business 4- Some economist suspect that one of the reasons that economies in...
1-What is the typical relationship between interest rate on three-month Treasury bills and on interest rate...
1-What is the typical relationship between interest rate on three-month Treasury bills and on interest rate on corporate bond and growth rate of money supply. 2- If history repeat itself and we see a decline in the rate of money growth, what might you expect to happen to Budget deficit The inflation rate 3- How does an increase in the value of the Israeli shekel affect American business 4- Some economist suspect that one of the reasons that economies in...
Q1: Define money and explain the important functions of money? Q2: Some economists suspect that one...
Q1: Define money and explain the important functions of money? Q2: Some economists suspect that one of the reasons that economies in developing countries grow so slowly is that they do not have well-developed financial markets. Does this argument make sense? Q3. When interest rates fall, how might you change your economic behavior? Q4: Why are financial markets important to the health of the economy? Q5: When the American dollar worth more in relation to currencies of other countries, would...
Activation Exercise 12-1: Bonds Issued at a Discount Terms and Definitions The interest rate paid on...
Activation Exercise 12-1: Bonds Issued at a Discount Terms and Definitions The interest rate paid on the face amount of a bond is called the of interest. The interest rate paid on similar risk bonds is called the of interest. When the contract rate of interest is less than the market rate of interest, the bonds will sell for their face value. The difference between the selling price and the face amount of the bonds in this case is called...
The interest rate charged by the central bank when it makes loans to commercial banks is...
The interest rate charged by the central bank when it makes loans to commercial banks is called the Select one: a. reserve requirement. b. prime rate c. discount rate d. open market rate. A bank is more likely to face bank runs by depositors if it Select one: a. is solvent. b. if it thoroughly evaluate risks before lending. c. keeps more of its money it reserves. d. makes risky loans to investors. A contractionary monetary policy reduces GDP by...
Topic: Open Market Supply SHANGHAI -- Money markets are often described as the financial system's plumbing....
Topic: Open Market Supply SHANGHAI -- Money markets are often described as the financial system's plumbing. When they work, which is most of the time, hardly anyone notices, but when they get blocked up, it creates quite a stink. That is why China's money market -- in which banks and other financial institutions borrowed some $6.4 trillion from each other last month alone to fund their daily needs -- is becoming one of the world's most important markets to watch....
The town of Cypress Creek is preparing to go to war against the American government. To...
The town of Cypress Creek is preparing to go to war against the American government. To do this, it is building a giant satellite laser! To build the laser, the government of the town will resort to taxation to fund its expenditure. The initial economy of Cypress Creek can be expressed by the following agents: Consumers, C = 25 + 0.95(Y-T) Output, Y = 5000 Government expenditures, G = 2000 Taxation, T = 2000 Investors, I = 750-125r Markets are...
Please Answer all of them, I don't have much time, Thank you 68) Large firms tend...
Please Answer all of them, I don't have much time, Thank you 68) Large firms tend to be A) net users of trade credit. B) net suppliers of trade credit. C) firms with high levels of profitability. D) firms with low levels of inventory turnover and accounts receivable turnover. 69) From the banker's point of view, short-term bank credit is an excellent way of financing A) fixed assets. B) permanent working capital needs. C) repayment of long-term debt. D) seasonal...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT