Suppose you are in charge of the financial departmentof your company and you have to decide whether toborrow short or long term. Checking the news, yourealize that the government is about to engage in amajor infrastructure plan in the near future. Predictwhat will happen to interest rates. Will you advise borrowing short or long term?

Suppose you are in charge of the financial departmentof your company and you have to decide whether toborrow short or long term. Checking the news, yourealize that the government is about to engage in amajor infrastructure plan in the near future. Predictwhat will happen to interest rates. Will you advise borrowing short or long term?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter17: Financial Markets

Section: Chapter Questions

Problem 5SCQ: Investors sometimes fear that a high-risk investment is especially likely to have low returns. Is...

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Investors sometimes fear that a high-risk investment is especially likely to have low returns. Is this fear true? Does a high risk mean the return must be low?
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Bank Risks] Banks sometimes issue large, mark etable certificates of deposits when other deposits declin e. The chart below exhibits the ratio of large time deposits to the total deposits in commercial banking industry in the US from 1995 to 2008. As you can o bserve, large time deposits had become increasingly important source of funds for banks. Note that a time deposit is an in terest-bearing bank deposit wi th a specified period of maturity. It is a mon ey deposit at a banking in stitution that cannot be withdrawn for a specific term or period of time. FRED - Large Time Deposits, Al Commercial Banks/Deposits, Al Commercial Bariks 0.32 0.30 0.28 0.26 0.24 0.22 020 0.18 a16 014 0.12 1996 1998 2000 2002 2004 2006 2008 Source Board of Governors of the Federal Reserve System (US) mytredig/F2kV What type of bank risk(s) (Liqui dity risk, credit risk, interest-rate risk, trading risk) does more likely account for this increase in large time dep osits and why? B. of U.S. S/BIl. of U.S. S
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What are some ways that someone looking for a loan might reassure a bank that is faced with imperfect information about whether the borrower will repay the loan?
Lewis’s management has been considering movingto a new downtown location, and they are concerned that these plans may come to fruition priorto the equipment lease’s expiration. If the moveoccurs then Lewis would buy or lease an entirelynew set of equipment, so management wouldlike to include a cancellation clause in the leasecontract. What effect would such a clause haveon the riskiness of the lease from Lewis’s standpoint? From the lessor’s standpoint? If you werethe lessor, would you insist on changing any ofthe other lease terms if a cancellation clause wereadded? Should the cancellation clause containprovisions similar to call premiums or any restrictive covenants and/or penalties of the type contained in bond indentures? Explain your answer.
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