Bond Markets and U.S. Banking History

Flashcards covering key concepts from Bond Markets and U.S. Banking History for exam preparation.

Interest rates are determined by the for and of Bonds.

Demand; Supply

The Demand for bonds depends on: Income, Expected Return, Liquidity, Risk, expected __.

inflation

Crowding Out occurs when the __ sells bonds, raising interest rates and discouraging private investment.

government

The Fisher Effect states that higher expected __ results in higher market (nominal) rates.

inflation

Risk Structure describes the difference in interest rates for bonds of similar __, but different risk.

maturity

Risk Premium is calculated as Bond Interest Rate - __ rate.

Risk Free

Theories explaining interest rate differences include Expectations and __ Preference.

Liquidity

The __ shows graphically the difference in interest rates for bonds of different maturity.

YIELD CURVE

The __ created the Federal Reserve System and the first true central bank in the U.S.

Federal Reserve Act, 1913

The __ Act prohibited interstate banking and limited branching.

McFadden

The __ Act, 1994 eliminated restrictions of the McFadden Act.

Riegle-Neal Interstate Banking and Branching Efficiency

Problems in bank regulation include the '__' issue.

too-big-to-fail

Types of bank regulation include: Asset Restrictions, Capital Requirements, Disclosure requirements, Supervision and __.

Examination

interest rates fall

Increase in demand for bonds

interest rates rise

Demand for bonds decreases

interest rates rise

increase in supply for bonds

interest rates rise

Decrease in demand for bonds

Fisher effect

changes in supply and demand reinforce each other

Risk Structure

the relationship between interest rates and risk levels of bonds, reflecting how yields vary across different types of bonds based on their credit quality and maturity. (SAME Maturity Different RISK)

Risk Premium Equation

Bond interest rate-risk free interest rate. compensates savers for giving up money

Term Structure of Interest Rates

explains the difference in interest rates for bonds with Different MATURITY, SIMILAR RISK

expectations hypothesis

longer maturity dates are based on expectations

inverted term structure

based on expectations that short maturity rates will fall

liquidity premium theory

savers prefer more liquidity. borrowers prefer less liquid bonds. This leads to higher rates to convince savers to invest in less liquid bonds.