SOLUTION MANUAL
Economics Of Money, Banking And Financial Markets
,Instructor’s Resource Manual
for
The Economics of Money,
Banking, and Financial Markets
The Economics
Of Money, Banking,
And Financial
Markets
Thirteenth Edition, Global Edition
Frederic S. Mishkin
New York, Ny
, Answers
To End-Of-Chapter Questions
And Problems
Chapter 1
Answers To Questions
1. What Is The Typical Relationship Among Interest Rates On Three-Month Treasury
Bills, Long-Term Treasury Bonds, And Baa Corporate Bonds?
The Interest Rate On Three-Month Treasury Bills Fluctuates More Than The Other
Interest Rates And Is Lower On Average. The Interest Rate On Baa Corporate
Bonds Is Higher On Average Than The Other Interest Rates.
2. What Effect Does High Volatility Of Financial Markets Have On People's
Willingness To Spend?
The High Volatility Of Financial Markets Decreases People's Willingness To Spend,
Primarily Because It Directly Affects Their Wealth, And Also Because High
Volatility Indicates That There Are Considerable Fluctuations In The Prices Of
Securities Over A Short Time Span. It Increases Insecurities About The Future Of
An Economy. Refer To Figure 2 To See The Extremely Volatile Nature Of Stock
Prices Between 1950 And 2020.
3. Explain The Main Difference Between A Bond And A Common Stock.
A Bond Is A Debt Instrument, Which Entitles The Owner To Receive Periodic
Amounts Of Money (Predetermined By The Characteristics Of The Bond) Until Its
Maturity Date. A Common Stock, However, Represents A Share Of Ownership In
The Institution That Has Issued The Stock. In Addition To Its Definition, It Is Not
The Same To Hold Bonds Or Stock Of A Given Corporation, Since Regulations State
That Stockholders Are Residual Claimants (I.E., The Corporation Has To Pay All
Bondholders Before Paying Stockholders).
4. What Is The Main Role Of A Financial Intermediary? Name Two
Financial Intermediaries.
A Financial Intermediary Is A Firm Or Institution That Channels Savings Into
Investments––That Is, It Borrows Funds From Individuals Who Have Saved And
Provides Loans To Those Who Need Funds. Banks And Mutual Funds Are Two
Examples Of Such Intermediaries.
5. What Was The Main Cause Of The Global Recession In 2020?
The Recession In 2020, Sometimes Referred To As The Covid-19 Recession, Was
Mainly Caused By The Global Pandemic Caused By The Infectious Coronavirus
Disease (Covid-19). In March 2020, The Stock Market Fell By 25% In A Single
Month.
According To The World Bank’s June 2020 Global Economic Prospects, The
, Volatility Induced By The Coronavirus Pandemic, Lockdowns, And Other
Preventive Measures Taken By Global Economies To Contain It Have Led To A
Severe Contraction In The Global Economy.
6. Can You Think Of A Reason Why People In General Do Not Lend Money To One
Another To Buy A House Or A Car? How Would Your Answer Explain The Existence
Of Banks?
In General, People Do Not Lend Large Amounts Of Money To One Another Because Of
Several Information Problems. In Particular, People Do Not Know About The
Capacity Of Other People Of Repaying Their Debts, Or The Effort They Will Provide
To Repay Their Debts.
Financial Intermediaries, In Particular Commercial Banks, Tend To Solve These
Problems By Acquiring Information About Potential Borrowers And Writing And
Enforcing Contracts That Encourage Lenders To Repay Their Debt And/Or Maintain
The Value Of The Collateral.
7. Why Are Banks Important To The Financial System?
Banks Are One Of The Major Financial Intermediaries. They Channel Savings From
Private Institutions Or The General Public To Other Institutions Or People Who Need
A Loan. Well-Functioning Banks Are Very Important For The Savings-To-Loans
Cycle And For The Housing Market.
8. Can You Date The Latest Financial Crisis In The United States Or In Europe? Are
There Reasons To Think That These Crises Might Have Been Related? Why?
The Latest Financial Crisis In The United States And Europe Occurred In 2007–
2009. At The Beginning, It Hit Mostly The U.S. Financial System, But It Then
Quickly Moved To Europe, Since Financial Markets Are Highly Interconnected. One
Specific Way In Which These Markets Were Related Is That Some Financial
Intermediaries In Europe Held Securities Backed By Mortgages Originated In The
United States, And When These Securities Lost Their A Considerable Part Of Their
Value, The Balance Sheet Of European Financial Intermediaries Was Adversely
Affected.
9. Has The Inflation Rate In The United States Increased Or Decreased In The
Past Few Years? What About Interest Rates?
Since 2015, Inflation Has Been Around 2%, With Some Brief Dips In 2015 And
2020. In 2015, The Interest Rate On Three-Month Treasury Bills Was Near Zero,
And It Then Rose To Just Over 2% In 2019, Only To Fall Back Near To Zero In
2020.-
10. If History Repeats Itself And We See A Decline In The Rate Of Money Growth, What
Might You Expect To Happen To
a. Real Output?
b. The Inflation Rate?
c. Interest Rates?
The Data In Figures 3, 5, And 6 Suggest That Real Output, The Inflation Rate, And
Interest Rates Would All Fall.
11. When Interest Rates Decrease, How Might Businesses And Consumers Change
, Their Economic Behavior?
Businesses Would Increase Investment Spending Because The Cost Of Financing
This Spending Is Now Lower, And Consumers Would Be More Likely To Purchase
A House Or A Car Because The Cost Of Financing Their Purchase Is Lower.
12. Is Everybody Worse Off When Interest Rates Rise?
No. It Is True That People Who Borrow To Purchase A House Or A Car Are Worse
Off Because It Costs Them More To Finance Their Purchase; However, Savers
Benefit Because They Can Earn Higher Interest Rates On Their Savings.
13. What Is The Main Role Of A Central Bank? Why Are Central Banks, Like The
European Central Bank (Ecb), Important To Financial Analysts?
Central Banks Oversee The Monetary Policy For A Specific Country Or A Group Of
Nations (As In The Case Of The Ecb). This Is Done By Setting A Base Interest Rate
Or By Forward Guidance, Which Impacts The Financial And Real Economy. Since
Money Affects Many Economic Variables That Are Important To The Health Of An
Economy, Financial Analysts (Including Politicians And Policymakers) Take An
Interest In The Conduct Of Monetary Policy, As Well As In The Management Of
Money And Interest Rates.
14. Germany Is One Of The Few Countries That Has Maintained A Budget Surplus In
The Last Five Years, And According To Reuters, The Federal Government Made A
Record Surplus Of €13.5 Billion In 2019. How Does A Budget Surplus Arise?
A Budget Surplus Results From Tax Revenues Exceeding Government Expenditure,
Which Leads To Lower Government Debt Burdens.
15. How Would A Fall In The Value Of The Pound Sterling Affect British Consumers?
It Makes Foreign Goods More Expensive, So British Consumers Will Buy Fewer
Foreign Goods And More Domestic Goods.
16. How Would An Increase In The Value Of The Pound Sterling Affect
American Businesses?
It Makes British Goods More Expensive Relative To American Goods. Thus,
American Businesses Will Find It Easier To Sell Their Goods In The United States
And Abroad, And The Demand For Their Products Will Rise.
17. How Can Changes In Foreign Exchange Rates Affect The Profitability Of
Financial Institutions?
Changes In Foreign Exchange Rates Change The Value Of Assets Held By Financial
Institutions And Thus Lead To Gains And Losses On These Assets. Also Changes In
Foreign Exchange Rates Affect The Profits Made By Traders In Foreign Exchange
Who Work For Financial Institutions.
18. According To Figure 8, In Which Years Would You Have Chosen To Visit The
Grand Canyon In Arizona Rather Than The Tower Of London?
In The Mid-To-Late 1970s, The Late 1980s To Early 1990s, And 2008 To 2015, The
Value Of The Dollar Was Low, Making Travel Abroad Relatively More Expensive;
Thus, It Was A Good Time To Vacation In The United States And See The Grand
Canyon. With The Rise In The Dollar’s Value In The Early 1980s, Late 1990s, And
,After 2015, Travel Abroad Became
, Relatively Cheaper, Making It A Good Time To Visit The Tower Of London. This
Was Also True, To A Lesser Extent, In The Early 2000s.
19. When The Dollar Is Worth More In Relation To Currencies Of Other Countries, Are
You More Likely To Buy American-Made Or Foreign-Made Jeans? Are U.S.
Companies That Manufacture Jeans Happier When The Dollar Is Strong Or When It
Is Weak? What About An American Company That Is In The Business Of Importing
Jeans Into The United States?
When The Dollar Increases In Value, Foreign Goods Become Less Expensive
Relative To American Goods; Thus, You Are More Likely To Buy French-Made
Jeans Than American- Made Jeans. The Resulting Drop In Demand For American-
Made Jeans Because Of The Strong Dollar Hurts American Jeans Manufacturers. On
The Other Hand, The American Company That Imports Jeans Into The United States
Now Finds That The Demand For Its Product Has Risen, So It Is Better Off When
The Dollar Is Strong.
20. While Much Of The Japanese Government Debt Is Held By Domestic Investors, Some
Of It Is Also Held By Foreign Investors. How Do The Fluctuations In The Japanese
Yen Affect The Value Of That Debt Held By Foreigners?
As The Value Of The Japanese Yen Depreciates (Decreases In Value) Relative To A
Foreign Currency, One Yen Is Equivalent To (Can Be Exchanged For) Less Foreign
Currency. Thus, For A Given Debt Amount, A Weaker Yen Will Yield Less Home
Currency To Foreigners, So The Asset Will Be Worth Less To Foreign Investors.
Similarly, An Appreciation Would Increase The Value Of The Debt.
Answers To Applied Problems
21. The Following Table Lists The Foreign Exchange Between Euros (€) And British
Pounds (£) During October 2020. Which Day Would Have Been The Best For
Converting €100 Into British Pounds? Which Day Would Have Been The Worst?
What Would The Difference Be In Pounds?
Date €/£
10/1/2020 1.086 0.92
10/2/2020 1.084 0.92
10/5/2020 1.081 0.93
10/6/2020 1.07 0.93
10/7/2020 1.051 0.95
10/8/2020 1.042 0.96
10/9/2020 1.04 0.96
10/12/2020 1.038 0.96
10/13/2020 1.037 0.96
10/14/2020 1.036 0.97
10/15/2020 1.035 0.97
10/16/2020 1.034 0.97
10/19/2020 1.033 0.97
10/20/2020 1.05 0.95
, 10/21/2020 1.06 0.94
10/22/2020 1.07 0.93
10/23/2020 1.086 0.92
10/26/2020 1.09 0.92
10/27/2020 1.091 0.92
10/28/2020 1.1 0.91
10/29/2020 1.12 0.89
10/30/2020 1.1 0.91
The Best Day Would Be October 19, 2020. At The Rate Of €1.033/Pound, You
Would Have £96.805. The Worst Day Is October 29, 2020. At €1.12/Pound, You
Would Have
£89.286. The Difference In Pounds Is £7.519.
Answers To Data Analysis Problems
1. Go To The St. Louis Federal Reserve Fred Database And Find Data On The Three-
Month Treasury Bill Rate (Tb3ms), The Three-Month Aa Nonfinancial Commercial
Paper Rate (Cpn3m), The 30-Year Treasury Bond Rate (Gs30), The 30-Year Fixed
Rate Mortgage Average (Mortgage30us), And The Nber Recession Indicators
(Usrec). For The Mortgage Rate Indicator, Set The Frequency Setting To
‟Monthly.‖
a. In General, How Do These Interest Rates Behave During Expansionary Periods?
Generally Speaking, The Interest Rates Fall During Recessions And Rise During
Expansionary Periods.
b. In General, How Do The Three-Month Interest Rates Compare To The 30-Year
Rates? How Do The Treasury Rates Compare To The Respective Commercial
Paper And Mortgage Rates?
In Nearly All Instances, The 30-Year Rates Are Significantly Higher Than The
Three- Month Rates. Likewise, In Most Cases, The 30-Year Mortgage Rate Is
Higher Than The 30-Year Treasury Rate, And The Three-Month Commercial
Paper Rate Is Higher Than The Three-Month Treasury Rate.
c. For The Most Recent Available Month Of Data, Take The Average Of Each
Of The Three-Month Rates And Compare It To The Average Of The Three-
Month Rates From January 2000. How Do The Averages Compare?
d. For The Most Recent Available Month Of Data, Take The Average Of Each Of
The 30- Year Rates And Compare It To The Average Of The 30-Year Rates From
January 2000. How Do The Averages Compare?
June 2020 January 2000
Three-Month Rate Avg. 0.17 5.53
30-Year Rate Avg. 2.33 7.42
,See The Table Above. For Both Rate Averages, They Have Decreased
Significantly Since January 2000.
, 2. Go To The St. Louis Federal Reserve Fred Database And Find Data On The M1
Money Supply (M1sl) And The 10-Year Treasury Bond Rate (Gs10). Add The Two
Series Into A Single Graph By Using The ―Add Data Series‖ Feature. Transform The
M1 Money Supply Variable Into The M1 Growth Rate By Adjusting The Units For
The M1 Money Supply To
―Percent Change From Year Ago.‖
a. In General, How Have The Growth Rate Of The M1 Money Supply And The 10-
Year Treasury Bond Rate Behaved During Recessions And During
Expansionary Periods Since The Year 2000?
Generally, The 10-Year Treasury Rate Fell During The
Recessionary Periods Of 2001 And 2007–2009; During
Expansionary Periods, There Was Less Of A Pattern, But
There Seems To Be A Long-Run Downward Trend In The
Interest Rate. The Money Growth Rate Increased
Significantly During Recessionary Periods; However,
During Expansions, There Is Less Of A Pattern;
Following The 2001 Recession, Money Growth Gradually
Declined, But After The 2007–2009 Recession, Money
Growth Was Relatively High And Variable.
b. In General, Is There An Obvious, Stable Relationship Between Money Growth
And The 10-Year Interest Rate Since The Year 2000?
When Money Growth Rises, The 10-Year Treasury Rate
Appears To Fall, And Vice Versa; However, This Effect
Is More Obvious Over Some Periods Than Others.
c. Compare The Money Growth Rate And The 10-Year Interest Rate For The Most
Recent Month Available To The Rates For January 2000. How Do The Rates
Compare?
May 2020 January 2000
M1 Money Growth 33.49 2.19
10-Year Treasury
Rate 0.67 6.66
The Money Growth Rate Is Significantly Higher In May
2020 Than It Was In January 2000.
The 10-Year Treasury Rate Is Significantly Lower In
May 2020 Than It Was In January 2000.
Economics Of Money, Banking And Financial Markets
,Instructor’s Resource Manual
for
The Economics of Money,
Banking, and Financial Markets
The Economics
Of Money, Banking,
And Financial
Markets
Thirteenth Edition, Global Edition
Frederic S. Mishkin
New York, Ny
, Answers
To End-Of-Chapter Questions
And Problems
Chapter 1
Answers To Questions
1. What Is The Typical Relationship Among Interest Rates On Three-Month Treasury
Bills, Long-Term Treasury Bonds, And Baa Corporate Bonds?
The Interest Rate On Three-Month Treasury Bills Fluctuates More Than The Other
Interest Rates And Is Lower On Average. The Interest Rate On Baa Corporate
Bonds Is Higher On Average Than The Other Interest Rates.
2. What Effect Does High Volatility Of Financial Markets Have On People's
Willingness To Spend?
The High Volatility Of Financial Markets Decreases People's Willingness To Spend,
Primarily Because It Directly Affects Their Wealth, And Also Because High
Volatility Indicates That There Are Considerable Fluctuations In The Prices Of
Securities Over A Short Time Span. It Increases Insecurities About The Future Of
An Economy. Refer To Figure 2 To See The Extremely Volatile Nature Of Stock
Prices Between 1950 And 2020.
3. Explain The Main Difference Between A Bond And A Common Stock.
A Bond Is A Debt Instrument, Which Entitles The Owner To Receive Periodic
Amounts Of Money (Predetermined By The Characteristics Of The Bond) Until Its
Maturity Date. A Common Stock, However, Represents A Share Of Ownership In
The Institution That Has Issued The Stock. In Addition To Its Definition, It Is Not
The Same To Hold Bonds Or Stock Of A Given Corporation, Since Regulations State
That Stockholders Are Residual Claimants (I.E., The Corporation Has To Pay All
Bondholders Before Paying Stockholders).
4. What Is The Main Role Of A Financial Intermediary? Name Two
Financial Intermediaries.
A Financial Intermediary Is A Firm Or Institution That Channels Savings Into
Investments––That Is, It Borrows Funds From Individuals Who Have Saved And
Provides Loans To Those Who Need Funds. Banks And Mutual Funds Are Two
Examples Of Such Intermediaries.
5. What Was The Main Cause Of The Global Recession In 2020?
The Recession In 2020, Sometimes Referred To As The Covid-19 Recession, Was
Mainly Caused By The Global Pandemic Caused By The Infectious Coronavirus
Disease (Covid-19). In March 2020, The Stock Market Fell By 25% In A Single
Month.
According To The World Bank’s June 2020 Global Economic Prospects, The
, Volatility Induced By The Coronavirus Pandemic, Lockdowns, And Other
Preventive Measures Taken By Global Economies To Contain It Have Led To A
Severe Contraction In The Global Economy.
6. Can You Think Of A Reason Why People In General Do Not Lend Money To One
Another To Buy A House Or A Car? How Would Your Answer Explain The Existence
Of Banks?
In General, People Do Not Lend Large Amounts Of Money To One Another Because Of
Several Information Problems. In Particular, People Do Not Know About The
Capacity Of Other People Of Repaying Their Debts, Or The Effort They Will Provide
To Repay Their Debts.
Financial Intermediaries, In Particular Commercial Banks, Tend To Solve These
Problems By Acquiring Information About Potential Borrowers And Writing And
Enforcing Contracts That Encourage Lenders To Repay Their Debt And/Or Maintain
The Value Of The Collateral.
7. Why Are Banks Important To The Financial System?
Banks Are One Of The Major Financial Intermediaries. They Channel Savings From
Private Institutions Or The General Public To Other Institutions Or People Who Need
A Loan. Well-Functioning Banks Are Very Important For The Savings-To-Loans
Cycle And For The Housing Market.
8. Can You Date The Latest Financial Crisis In The United States Or In Europe? Are
There Reasons To Think That These Crises Might Have Been Related? Why?
The Latest Financial Crisis In The United States And Europe Occurred In 2007–
2009. At The Beginning, It Hit Mostly The U.S. Financial System, But It Then
Quickly Moved To Europe, Since Financial Markets Are Highly Interconnected. One
Specific Way In Which These Markets Were Related Is That Some Financial
Intermediaries In Europe Held Securities Backed By Mortgages Originated In The
United States, And When These Securities Lost Their A Considerable Part Of Their
Value, The Balance Sheet Of European Financial Intermediaries Was Adversely
Affected.
9. Has The Inflation Rate In The United States Increased Or Decreased In The
Past Few Years? What About Interest Rates?
Since 2015, Inflation Has Been Around 2%, With Some Brief Dips In 2015 And
2020. In 2015, The Interest Rate On Three-Month Treasury Bills Was Near Zero,
And It Then Rose To Just Over 2% In 2019, Only To Fall Back Near To Zero In
2020.-
10. If History Repeats Itself And We See A Decline In The Rate Of Money Growth, What
Might You Expect To Happen To
a. Real Output?
b. The Inflation Rate?
c. Interest Rates?
The Data In Figures 3, 5, And 6 Suggest That Real Output, The Inflation Rate, And
Interest Rates Would All Fall.
11. When Interest Rates Decrease, How Might Businesses And Consumers Change
, Their Economic Behavior?
Businesses Would Increase Investment Spending Because The Cost Of Financing
This Spending Is Now Lower, And Consumers Would Be More Likely To Purchase
A House Or A Car Because The Cost Of Financing Their Purchase Is Lower.
12. Is Everybody Worse Off When Interest Rates Rise?
No. It Is True That People Who Borrow To Purchase A House Or A Car Are Worse
Off Because It Costs Them More To Finance Their Purchase; However, Savers
Benefit Because They Can Earn Higher Interest Rates On Their Savings.
13. What Is The Main Role Of A Central Bank? Why Are Central Banks, Like The
European Central Bank (Ecb), Important To Financial Analysts?
Central Banks Oversee The Monetary Policy For A Specific Country Or A Group Of
Nations (As In The Case Of The Ecb). This Is Done By Setting A Base Interest Rate
Or By Forward Guidance, Which Impacts The Financial And Real Economy. Since
Money Affects Many Economic Variables That Are Important To The Health Of An
Economy, Financial Analysts (Including Politicians And Policymakers) Take An
Interest In The Conduct Of Monetary Policy, As Well As In The Management Of
Money And Interest Rates.
14. Germany Is One Of The Few Countries That Has Maintained A Budget Surplus In
The Last Five Years, And According To Reuters, The Federal Government Made A
Record Surplus Of €13.5 Billion In 2019. How Does A Budget Surplus Arise?
A Budget Surplus Results From Tax Revenues Exceeding Government Expenditure,
Which Leads To Lower Government Debt Burdens.
15. How Would A Fall In The Value Of The Pound Sterling Affect British Consumers?
It Makes Foreign Goods More Expensive, So British Consumers Will Buy Fewer
Foreign Goods And More Domestic Goods.
16. How Would An Increase In The Value Of The Pound Sterling Affect
American Businesses?
It Makes British Goods More Expensive Relative To American Goods. Thus,
American Businesses Will Find It Easier To Sell Their Goods In The United States
And Abroad, And The Demand For Their Products Will Rise.
17. How Can Changes In Foreign Exchange Rates Affect The Profitability Of
Financial Institutions?
Changes In Foreign Exchange Rates Change The Value Of Assets Held By Financial
Institutions And Thus Lead To Gains And Losses On These Assets. Also Changes In
Foreign Exchange Rates Affect The Profits Made By Traders In Foreign Exchange
Who Work For Financial Institutions.
18. According To Figure 8, In Which Years Would You Have Chosen To Visit The
Grand Canyon In Arizona Rather Than The Tower Of London?
In The Mid-To-Late 1970s, The Late 1980s To Early 1990s, And 2008 To 2015, The
Value Of The Dollar Was Low, Making Travel Abroad Relatively More Expensive;
Thus, It Was A Good Time To Vacation In The United States And See The Grand
Canyon. With The Rise In The Dollar’s Value In The Early 1980s, Late 1990s, And
,After 2015, Travel Abroad Became
, Relatively Cheaper, Making It A Good Time To Visit The Tower Of London. This
Was Also True, To A Lesser Extent, In The Early 2000s.
19. When The Dollar Is Worth More In Relation To Currencies Of Other Countries, Are
You More Likely To Buy American-Made Or Foreign-Made Jeans? Are U.S.
Companies That Manufacture Jeans Happier When The Dollar Is Strong Or When It
Is Weak? What About An American Company That Is In The Business Of Importing
Jeans Into The United States?
When The Dollar Increases In Value, Foreign Goods Become Less Expensive
Relative To American Goods; Thus, You Are More Likely To Buy French-Made
Jeans Than American- Made Jeans. The Resulting Drop In Demand For American-
Made Jeans Because Of The Strong Dollar Hurts American Jeans Manufacturers. On
The Other Hand, The American Company That Imports Jeans Into The United States
Now Finds That The Demand For Its Product Has Risen, So It Is Better Off When
The Dollar Is Strong.
20. While Much Of The Japanese Government Debt Is Held By Domestic Investors, Some
Of It Is Also Held By Foreign Investors. How Do The Fluctuations In The Japanese
Yen Affect The Value Of That Debt Held By Foreigners?
As The Value Of The Japanese Yen Depreciates (Decreases In Value) Relative To A
Foreign Currency, One Yen Is Equivalent To (Can Be Exchanged For) Less Foreign
Currency. Thus, For A Given Debt Amount, A Weaker Yen Will Yield Less Home
Currency To Foreigners, So The Asset Will Be Worth Less To Foreign Investors.
Similarly, An Appreciation Would Increase The Value Of The Debt.
Answers To Applied Problems
21. The Following Table Lists The Foreign Exchange Between Euros (€) And British
Pounds (£) During October 2020. Which Day Would Have Been The Best For
Converting €100 Into British Pounds? Which Day Would Have Been The Worst?
What Would The Difference Be In Pounds?
Date €/£
10/1/2020 1.086 0.92
10/2/2020 1.084 0.92
10/5/2020 1.081 0.93
10/6/2020 1.07 0.93
10/7/2020 1.051 0.95
10/8/2020 1.042 0.96
10/9/2020 1.04 0.96
10/12/2020 1.038 0.96
10/13/2020 1.037 0.96
10/14/2020 1.036 0.97
10/15/2020 1.035 0.97
10/16/2020 1.034 0.97
10/19/2020 1.033 0.97
10/20/2020 1.05 0.95
, 10/21/2020 1.06 0.94
10/22/2020 1.07 0.93
10/23/2020 1.086 0.92
10/26/2020 1.09 0.92
10/27/2020 1.091 0.92
10/28/2020 1.1 0.91
10/29/2020 1.12 0.89
10/30/2020 1.1 0.91
The Best Day Would Be October 19, 2020. At The Rate Of €1.033/Pound, You
Would Have £96.805. The Worst Day Is October 29, 2020. At €1.12/Pound, You
Would Have
£89.286. The Difference In Pounds Is £7.519.
Answers To Data Analysis Problems
1. Go To The St. Louis Federal Reserve Fred Database And Find Data On The Three-
Month Treasury Bill Rate (Tb3ms), The Three-Month Aa Nonfinancial Commercial
Paper Rate (Cpn3m), The 30-Year Treasury Bond Rate (Gs30), The 30-Year Fixed
Rate Mortgage Average (Mortgage30us), And The Nber Recession Indicators
(Usrec). For The Mortgage Rate Indicator, Set The Frequency Setting To
‟Monthly.‖
a. In General, How Do These Interest Rates Behave During Expansionary Periods?
Generally Speaking, The Interest Rates Fall During Recessions And Rise During
Expansionary Periods.
b. In General, How Do The Three-Month Interest Rates Compare To The 30-Year
Rates? How Do The Treasury Rates Compare To The Respective Commercial
Paper And Mortgage Rates?
In Nearly All Instances, The 30-Year Rates Are Significantly Higher Than The
Three- Month Rates. Likewise, In Most Cases, The 30-Year Mortgage Rate Is
Higher Than The 30-Year Treasury Rate, And The Three-Month Commercial
Paper Rate Is Higher Than The Three-Month Treasury Rate.
c. For The Most Recent Available Month Of Data, Take The Average Of Each
Of The Three-Month Rates And Compare It To The Average Of The Three-
Month Rates From January 2000. How Do The Averages Compare?
d. For The Most Recent Available Month Of Data, Take The Average Of Each Of
The 30- Year Rates And Compare It To The Average Of The 30-Year Rates From
January 2000. How Do The Averages Compare?
June 2020 January 2000
Three-Month Rate Avg. 0.17 5.53
30-Year Rate Avg. 2.33 7.42
,See The Table Above. For Both Rate Averages, They Have Decreased
Significantly Since January 2000.
, 2. Go To The St. Louis Federal Reserve Fred Database And Find Data On The M1
Money Supply (M1sl) And The 10-Year Treasury Bond Rate (Gs10). Add The Two
Series Into A Single Graph By Using The ―Add Data Series‖ Feature. Transform The
M1 Money Supply Variable Into The M1 Growth Rate By Adjusting The Units For
The M1 Money Supply To
―Percent Change From Year Ago.‖
a. In General, How Have The Growth Rate Of The M1 Money Supply And The 10-
Year Treasury Bond Rate Behaved During Recessions And During
Expansionary Periods Since The Year 2000?
Generally, The 10-Year Treasury Rate Fell During The
Recessionary Periods Of 2001 And 2007–2009; During
Expansionary Periods, There Was Less Of A Pattern, But
There Seems To Be A Long-Run Downward Trend In The
Interest Rate. The Money Growth Rate Increased
Significantly During Recessionary Periods; However,
During Expansions, There Is Less Of A Pattern;
Following The 2001 Recession, Money Growth Gradually
Declined, But After The 2007–2009 Recession, Money
Growth Was Relatively High And Variable.
b. In General, Is There An Obvious, Stable Relationship Between Money Growth
And The 10-Year Interest Rate Since The Year 2000?
When Money Growth Rises, The 10-Year Treasury Rate
Appears To Fall, And Vice Versa; However, This Effect
Is More Obvious Over Some Periods Than Others.
c. Compare The Money Growth Rate And The 10-Year Interest Rate For The Most
Recent Month Available To The Rates For January 2000. How Do The Rates
Compare?
May 2020 January 2000
M1 Money Growth 33.49 2.19
10-Year Treasury
Rate 0.67 6.66
The Money Growth Rate Is Significantly Higher In May
2020 Than It Was In January 2000.
The 10-Year Treasury Rate Is Significantly Lower In
May 2020 Than It Was In January 2000.
