Question

1. What are two ways to think about an interest rate? What are some of the reasons we observe a number of interest rates in the economy rather than a single interest rate? What are some theories concerning the term structure of interest rates and what do they imply about the yield curve?

2. What are depository institutions? How do they differ from other financial institutions? What are the assets and liabilities of depository institutions? How do depository institutions manage the risk associated with both their assets and liabilities.

Answer 1

The interest rate is an important concept in the economy. The interest rate is what an investor looks for and the other one which a compnay can pay on the investment made by the investors. While looking at the interest rate we look a number of interest rate as to come to a conclusion the avaergre figure as the company canonly give up to the prevailing average interest rate in the economy.

Some of the theory on interesr rate is the classical theory on interest which says in determination only real factors are taken into consideration and moetary factors are not given importance. The other theory is neo-classical theory of interest which incorporates non-monetary facors with monetary. The non-monetary factors can be factors of savings and investments.