Interest Rates and Financial Management

Vocabulary flashcards covering key concepts related to interest rates and their impact on financial management and the economy.

Term Structure of Interest Rates

The term structure of interest rates, commonly known as the yield curve, depicts the interest rates of similar quality bonds at different maturities.

Yield Curve

A line that plots the yields or interest rates of bonds that have equal credit quality but different maturity dates.

Term Structure of Interest Rates

Reflects the expectations of market participants about future changes in interest rates and their assessment of monetary policy conditions.

Level of the Yield Curve

Measures the general level of interest rates in the economy and is heavily influenced by the cash rate.

Higher Interest Rates

A policy response to rising inflation.

Inflation in Philippine Settings

Influence bank policies and investor behavior.

Expectations Theory

Instrument of different maturities are equally attractive to investors, who care only about returns.

Inflation

Anticipation of higher future prices generally leads to an increase in interest rates.

Economic Growth or Decline

Strong economic performance can drive interest rates up, while a downturn may cause them to fall.

Unemployment Rate

High unemployment often leads to lower interest rates to encourage borrowing and spending, while low unemployment can push rates higher as inflation pressures increase.

Federal Reserve Policy

Actions and communications to promote maximum employment, stable prices, and moderate long-term interest rates--the economic goals the Congress has instructed the Federal Reserve to pursue.

Budget Deficit

Occurs when government expenses exceed revenue.

Budget Surplus

Refers to a situation that occurs when income exceeds expenditures.

Global Economic Conditions

Economic growth or downturns in major economies (like the U.S., Asia, or the Europe) can impact interest rates worldwide, as countries adjust to global trends.

Foreign Interest Rates

Interest rates set by central banks in other countries can influence domestic rates.

Global Inflation Trends

Inflation in major economies can influence global interest rates, as central banks may raise or lower rates in response to international price pressures.

Global Financial Crises

Financial crises in other parts of the world can affect interest rates in other countries as governments and central banks adjust policies to stabilize their economies and financial systems.

Business Activity

Closely tied to interest rates because borrowing costs affect investment, expansion, and consumer spending.

Borrowing and Financing

Low rates make borrowing money cheaper; it encourages investment and expansion, while high rates increase the borrowing costs and can cause delays to proposals or projects.

Investment Aspect

Low rates lead to more capital investment, while high rates might cause businesses to be cautious.

Pricing and Profitability

High rates of interest can increase the costs, reducing profit margins and giving potential to price to rise.

Consumer Demand

Low rates in interest boost consumer spending and demand for products, while high rates reduce the demand and spending of the market.

Stock Market

Interest rate changes can affect the stock prices and valuations of the market, with higher rates often resulting in lower stock prices.