Why did the interest rate volatility of the 1970s spur financial innovation?
What will be an ideal response?
Banks were very vulnerable to interest-rate risk in the mortgage loans. To protect themselves, banks began to issue adjustable-rate mortgages whose interest rate will increase along with market interest rates. Additionally financial derivatives were developed to help hedge against interest-rate risk.
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GDP is a good proxy for the business cycle itself since ________
A) its real consumption spending component is procyclical and coincident B) its real investment spending component is procyclical and coincident C) it typically goes up in a boom and down in a recession D) all of the above E) none of the above
A tax equal to the external cost on firms that emit pollutants would: a. provide firms with the incentive to increase the level of activity creating the pollution
b. provide firms with the incentive to decrease the level of activity creating the pollution. c. provide firms with little incentive to search for less environmentally damaging production methods. d. not reduce pollution levels at all.
The asset demand for money and the rate of interest are:
a. Unrelated b. Directly related c. Both stable d. Inversely related
McDonald's introduced the Big Mac in 1968, and it turned out to be a hit. However, the Arch Deluxe, introduced in 1996, was not. The success or failure of a product in the market system is determined by
What will be an ideal response?