Suppose you believe that the economy is just entering a recession. Your firm must raise capital immediately, and debt will be used. Should you borrow on a long-term or short-term basis? Why?
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Suppose you believe that the economy is just entering a recession. Your firm must raise capital immediately, and debt will be used. Should you borrow on a long-term or short-term basis? Why?
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- Suppose you believe that the economy is just entering a recession. Your firm must raisecapital immediately, and debt will be used. Should you borrow on a long-term or a shorttermbasis? Why?The economy is said to be entering a recession but your company needs to borrow money for an immediate need. Should you borrow on a long-term or short-term basis? Why?What risks might commercial banks face if they use short-term deposits from savers to pay for long-term loans, like mortgages, that often have fixed interest rates? What could the financial institution do to lower these risks?
- An economy is making a rapid recovery from steep recession, and businesses foresee a need for large amounts of capital investment. Why would this development affect real interest rates?Banks are more likely to create M-1 when the economy is expanding than when it is experiencing a recession. Do you agree or disagree? Why?If the bank decides to cut down on interest expenses by reducing its dependence upon borrowed funds, what policy must the bank follow?
- Do you think some investors may take advantage of the interest rate reduction, despite economic uncertainties?Which explanation BEST describes John Maynard Keynes' "The Paradox of Thrift?" a. Individuals should reduce spending to cut debt. b. When an individual reduces her or his own spending, he or she reduces someone else's revenue. C. Individuals should borrow money during uncertain economic times. d. Individuals should only borrow money when times are good.How should a bank structure its liquid assets portfolio to take advantage of falling interest rates ? a. The bank should invest in short-term securities to minimise capital loss b. The bank should invest in long term securities to maximise capital gains. c. The bank should borrow at fixed interest rates d. The bank should issue certificate deposits with fixed interest rates. e. The bank should hold cash to maximise its interest income. Which option is correct
- Which of the following statements is correct? A firm has a greater likelihood of needing an unexpected loan when its cash flows are relatively constant over time. The cost of borrowing affects the target cash balance of a firm. Management's desire to maintain a low cash balance has no effect on the borrowing needs of a firm. The target cash balance increases as the interest rate rises. The target cash balance decreases as the order costs increase.Suppose that as the economy moves through a business cycle, risk premiums also change. For example, in a recession, when people are concerned about their jobs, risk tolerance might be lower and risk premiums might be higher. In a booming economy, tolerance for risk might be higher and premiums lower.a. Would a predictably shifting risk premium such as described here be a violation of the efficient market hypothesis?b. How might a cycle of increasing and decreasing risk premiums create an appearance that stock prices “overreact,” first falling excessively and then seeming to recover?If we hold all other factors the same, an increase in interest rates will: a. Decrease the present value of a stream of constant payments we expect to receive. b. Increase the present value of a stream of constant payments we expect to receive. c. Decrease the interest revenue that a company will earn on its funds that it holds in its interest-bearing checking account. d. No impact on how much a company should be willing to pay for factory equipment that is expected to significantly reduce the factory electricity costs.