TAILIEUCHUNG - Interest Rates

The behavior of interest rates, the risk and term structure of interest rates,. is the main content of the lecture "Interest Rates". Invite you to consult the detailed content lectures to capture details. | Interest Rates Contents The Behavior of Interest Rates The Risk and Term Structure of Interest Rates The Behavior of Interest Rates Introduction Determinants of Asset Demand Theory of Portfolio Choice Supply and Demand in the Bond Market Changes in Equilibrium Interest Rates Supply and Demand in the Market for Money: The Liquidity Preference Framework Changes in Equilibrium Interest Rates in the Liquidity Preference Framework Determinants of Asset Demand Wealth: the total resources owned by the individual, including all assets Expected Return: the return expected over the next period on one asset relative to alternative assets Risk: the degree of uncertainty associated with the return on one asset relative to alternative assets Liquidity: the ease and speed with which an asset can be turned into cash relative to alternative assets Theory of Portfolio Choice Holding all other factors constant: The quantity demanded of an asset is positively related to wealth The quantity demanded of an asset is positively related to its expected return relative to alternative assets The quantity demanded of an asset is negatively related to the risk of its returns relative to alternative assets The quantity demanded of an asset is positively related to its liquidity relative to alternative assets Summary Table 1 Response of the Quantity of an Asset Demanded to Changes in Wealth, Expected Returns, Risk, and Liquidity Supply and Demand in the Bond Market At lower prices (higher interest rates), ceteris paribus, the quantity demanded of bonds is higher: an inverse relationship At lower prices (higher interest rates), ceteris paribus, the quantity supplied of bonds is lower: a positive relationship Figure 1 Supply and Demand for Bonds Market Equilibrium Occurs when the amount that people are willing to buy (demand) equals the amount that people are willing to sell (supply) at a given price Bd = Bs defines the equilibrium (or market clearing) price and .

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