Interest Rates Determinants

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What is the difference in interest rates due to changes in macroeconomic variables, holding the intrinsic characteristics of securities constant?

Term structure of interest rates

Interest rate spread

Real interest rate

Differences in interest rates over time (correct)

What is the relationship between inflation and interest rates?

Inverse relationship

Positive relationship (correct)

No relationship

Negative relationship

What does the real interest rate measure?

The rate of inflation

The rate of return on an investment

The percentage change in the buying power of a dollar (correct)

The time value of money

What happens to the demand for loanable funds when the economy is doing well?

It increases Signup and view all the answers

What is the effect of a higher preference to consume today on the real interest rate?

It increases Signup and view all the answers

What determines the real interest rate?

Consumer's relative time preference for consuming today rather than later Signup and view all the answers

What is the expected outcome when the economy is doing well?

An increase in the quantity of loans made Signup and view all the answers

What is the primary concern of default risk?

The risk that the issuer will not pay the interest and principal on a timely basis Signup and view all the answers

According to the Liquidity Preference Theory, what should an investor demand for securities with long-term maturities?

A higher interest rate or premium Signup and view all the answers

What is the effect of a tax-free bond on its interest rate compared to a taxable bond?

The interest rate is lower Signup and view all the answers

What is the term used to describe the change in required interest rates as maturity changes?

Maturity premium Signup and view all the answers

What is the nominal interest rate in the example where the annual inflation rate is 2%?

5% Signup and view all the answers

What is the formula to compute the real interest rate using the Fisher equation?

[(1+0.05)/(1+0.02) – 1] x 100 Signup and view all the answers

What is the total amount repaid after 3 years if the principal is RM10,000 and the interest rate is 8% per annum?

RM12,400 Signup and view all the answers

What is the amount of interest to be paid by the student for the three years period if the loan is RM 18,000 and the annual interest rate is 6%?

RM3,240 Signup and view all the answers

What is the total amount paid for the loan if the loan is RM 18,000 and the interest is RM3,240?

RM21,240 Signup and view all the answers

What is the characteristic of a fixed rate?

An interest rate that does not fluctuate over time Signup and view all the answers

What is the name of the rate that is similar to the Base Rate (BR) and Base Lending Rate (BLR)?

Fixed Rate Signup and view all the answers

What is the primary function of the Overnight Policy Rate (OPR) set by Bank Negara Malaysia (BNM)?

To influence the overall monetary policy Signup and view all the answers

What determines the Computed BLR for commercial banks?

Intervention rate / (1-SRR) x 0.8 + 2.25% Signup and view all the answers

What is the key difference between the old reference rate framework and the new reference rate framework?

The replacement of BLR with Base Rate Signup and view all the answers

What is the purpose of the Standardized Base Rate (SBR) introduced in 2022?

To provide a benchmark for pricing of new retail floating-rate loans Signup and view all the answers

What is a key factor in determining the lending/financing rate in the new reference rate framework?

The spread Signup and view all the answers

Which factor is a key determinant of interest rates in Malaysia?

Overnight Policy Rate Signup and view all the answers

What benchmark has been used for lending rates in Malaysia?

Kuala Lumpur Interbank Offered Rate (KLIBOR) Signup and view all the answers

How does an increase in the Overnight Policy Rate (OPR) affect borrowing costs in Malaysia?

Increases the base rate (BR) Signup and view all the answers

What is the primary goal of Bank Negara Malaysia's (BNM) monetary policy when adjusting interest rates?

Achieving price stability Signup and view all the answers

True or False: The Overnight Policy Rate (OPR) is set by Bank Negara Malaysia to control the exchange rate of the Malaysian Ringgit.

False Signup and view all the answers

True or False: Inflation expectations have no impact on the decision-making of businesses and consumers in Malaysia.

False Signup and view all the answers

True or False: The Kuala Lumpur Interbank Offered Rate (KLIBOR) is solely influenced by global economic conditions.

False Signup and view all the answers

Interest Rates Determinants

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Questions and Answers

What is the difference in interest rates due to changes in macroeconomic variables, holding the intrinsic characteristics of securities constant?

What is the relationship between inflation and interest rates?

What does the real interest rate measure?

What happens to the demand for loanable funds when the economy is doing well?

What is the effect of a higher preference to consume today on the real interest rate?

What determines the real interest rate?

What is the expected outcome when the economy is doing well?

What is the primary concern of default risk?

According to the Liquidity Preference Theory, what should an investor demand for securities with long-term maturities?

What is the effect of a tax-free bond on its interest rate compared to a taxable bond?

What is the term used to describe the change in required interest rates as maturity changes?

What is the nominal interest rate in the example where the annual inflation rate is 2%?

What is the formula to compute the real interest rate using the Fisher equation?

What is the total amount repaid after 3 years if the principal is RM10,000 and the interest rate is 8% per annum?

What is the amount of interest to be paid by the student for the three years period if the loan is RM 18,000 and the annual interest rate is 6%?

What is the total amount paid for the loan if the loan is RM 18,000 and the interest is RM3,240?

What is the characteristic of a fixed rate?

What is the name of the rate that is similar to the Base Rate (BR) and Base Lending Rate (BLR)?

What is the primary function of the Overnight Policy Rate (OPR) set by Bank Negara Malaysia (BNM)?

What determines the Computed BLR for commercial banks?

What is the key difference between the old reference rate framework and the new reference rate framework?

What is the purpose of the Standardized Base Rate (SBR) introduced in 2022?

What is a key factor in determining the lending/financing rate in the new reference rate framework?

Which factor is a key determinant of interest rates in Malaysia?

What benchmark has been used for lending rates in Malaysia?

How does an increase in the Overnight Policy Rate (OPR) affect borrowing costs in Malaysia?

What is the primary goal of Bank Negara Malaysia's (BNM) monetary policy when adjusting interest rates?

True or False: The Overnight Policy Rate (OPR) is set by Bank Negara Malaysia to control the exchange rate of the Malaysian Ringgit.

True or False: Inflation expectations have no impact on the decision-making of businesses and consumers in Malaysia.

True or False: The Kuala Lumpur Interbank Offered Rate (KLIBOR) is solely influenced by global economic conditions.

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