Financial Markets - Determining the Interest Rate - Monetary policy and open market operations
6 important questions on Financial Markets - Determining the Interest Rate - Monetary policy and open market operations
Where do open market operations take place? What are they? Which 2 types do you have?
- take place in the ‘open market’ for bonds
- are the standard method central banks use to change the money stock in modern economies
- 2 types:
- expansionary open market operation
- contractionary open market operation
What is a contractionary open market operation?
If the central bank sells bonds, this operation is called a contractionary open market operation because the central bank decreases (contracts (=inkrimpen, vernauwen)) the supply of money.
What are the assets and what the liabilities of the central bank?
- The assets of the central bank are the bonds it holds.
- The
liabilities are the stock(=voorraad) of money in the economy
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How does an open market operation in which the central bank buys bonds and issues money affect the balance sheet of the central bank?
- Assets: plus een miljoen bonds (bonds gekocht bij commercial banks)
- Liabilities: gewoon een miljoen bijdrukken.
Treasury bills(=schatkistpapieren), or T-bills are issued by the US government promising payment in a year or less. How do you calculate the rate of return (or interest) on holding, let's say a €100 bond for a year
If you buy the bond today and hold it for a year, the rate of return (or interest) on holding a €100 bond for a year is i=
What is the formula of the price of a bond?
NB Overheid koopt bonds -> prijs bonds omhoog -> interest bonds naar beneden (kun je in deze formule zien)
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