The Financial System and the Level of Interest Rates
← Business ethics (BBDE Health Center) | Management: Casinos → |
The chapter entitled “The Financial System and the Level of Interest Rates” by Parrino, Kidwell, and Bates outlines the way the financial system channels money to business, the backgrounds and rules of different financial systems and markets, and defines the determinants of interest rates. According to the authors, the efficiency of a financial system, consisting of financial markets and financial institutions, is critical for the operations of a complex industrial economy. It gathers money from households, businesses, and governments with surplus funds to invest it for those who need it. The banks gather money from consumers and fund business loans. The competitiveness of the system may be defined by the interest rates the banks can afford to pay on certificates of deposit (CDs) and the loan rates of banks' cost of interest. The proper system contributes to higher production and efficiency in the overall economy by directing the money from lender-savers to borrower-spenders to the best opportunities for investment. It does so either directly, through wholesale financial markets, or indirectly, through financial institutions. The companies gather the money needed for their further development by issuing and selling securities (bonds) on which they pay interest to the bondholders.
Investment banks and money center banks that are now quite similar are important participants of the direct financial market. The former help companies to sell new debt or equity, and the latter provide traditional and investment banking services. The chapter also explains originating, underwriting, and distribution as the three stages of the process of selling security issue. It particularly mentions that financial managers usually prefer to have new securities underwritten on a firm-commitment basis. In this case, investment bankers buy them from the client company at their own risk to resell to the investors at the underwriting spread cost. The primary market for new securities was described by the money going into the company as a result of transactions. And the secondary market where owners can sell their outstanding securities and no money goes to the firm is said to play an important role for the companies and investors. Having active secondary markets enables companies to enjoy lower funding costs. Also, the investors can buy and sell securities as frequently as they want.
The securities are characterized in terms of their marketability and liquidity. The former determines the ease of sale of a security and partly depends on the transaction costs. The latter stands for the asset's ability to be quickly converted into cash without loss of its value. In contrast to liquidity, marketability does not imply preservation of the value of a security once it is sold. The authors also reveal the principles of work, the way of deriving value, risks, and amount of money in different types of financial markets including exchanges and over-the-counter markets, money and capital markets, public and private markets, and futures and options markets. Their operational and informational efficiency depends on the degree of reflection of the knowledge and expectations of all investors at a particular point of time. The chapter explains the efficient market hypothesis as a theory that helps to evaluate the efficiency of the financial markets. The semi-strong form of this hypothesis is said to be representing the public stock markets in the developed countries including the US. The authors have also examined the role of financial institutions as intermediaries in the indirect financial market standing between the lender-savers and borrower-spenders, and satisfying the needs of a specific market. Finally, the chapter examines the factors determining the level of interest rates varying over the business cycle and provides the equations to compute the nominal rate when one has the real rate and the inflation rate. The expectations of businesses on the rate of return and individuals’ time preference for consumption are described as key factors defining the real rate of interest.
Learning about the general level of interest rates in the economy and the way they vary over the business cycle will help me to use the financial instruments and services described throughout this chapter. I have studied the financial system as a definitely ordered set of financial relations and learned the principles businesses use to gather money for their development and projects. I will now be able to define the degree of competitiveness of a specific financial system in terms of interest rates for loans and interest rates for deposits. It will be important for my future career to understand the key components of the process of selling new securities by the firm. I have also comprehended the differences between small businesses, big corporations, and individuals in terms of their interests and accessibility to the specific financial markets and learned how important for the companies’ securities is to have active secondary markets. Finally, I have acquired considerable analytical skills to define the efficiency of various financial markets by means of the efficiency hypothesis.
Buy original essay on business and save your time!
- Management: Casinos
- 5 Reasons Why Businesses Fail
- Business ethics (BBDE Health Center)
- Business Experience
![]() |
Bryce F.
Capistrano, CA
|
|
Thanks for the excellent job that you guys did on my history assignment and my bio research paper. I never could have done this on my own. |
![]() |
Pete F.
Sparta, NJ
|
|
Dear EssaysEmpire.com, I have never used a writing service like yours before. None of the ones I have tried previously offered the kind of guarantees that you offer. I even bought a paper that was plagiarized once. I never have to worry about things like that with EssaysEmpire.com! Thanks a million! |
![]() |
Brianne H.
Tampa, FL
|
|
The paper that I purchased from EssaysEmpire.com was well written. Thank you. I will have another order for you soon. Since I was so happy with the way things went, I see no reason to use any other writing service. Your service delivers the goods, just like you say you will. |
![]() |
Phoebe K.
Madison, CT
|
|
I find your writing company to be professional, proficient and perfect. Your papers are always so good! They make good reading, in addition to being well written assignments. I can tell your writers really know their stuff! |
![]() |
Gaia W.
Lexington, OK
|
|
EssaysEmpire.com gets an A+ for being the best writing service a student could ever ask for! Thank you for your continued high quality work, guys. I have purchased 6 papers from you over the last two years and they have been exquisite in their workmanship and content. I really appreciate how hard you guys work to please your customers. I’m not surprised that you are reported to be the best writing company online or off. To me, you are exactly that. |
![]() |
Royce B.
Dallas, TX
|
|
It is so refreshing to work with a writing service as professional as EssaysEmpire.com. Everything from your website, to your customer service workers to the writing itself, is top rate. I recommend you highly to anyone who will listen. |
![]() |
Philipa W.
Rome, ITALY
|
|
The paper that your writers did for me on the topic of, The Psychological Effects of Fluorescent Lighting in the Workplace,” was right on the money! They included my long list of customizations and did not charge extra for them. The formatting was just right. There were no grammatical errors. The length was what it was supposed to be. I am so happy that I chose to let the EssaysEmpire.com writers take care of my paper for me. I will choose this writing service again without hesitation. |
![]() |
Sarah M.
Portland, OR
|
|
Today was the perfect day to make an A+! It convinced me that there are solutions to problems that seem impossible to solve. When I realized that the due date for my paper was coming up quickly, I felt like there was nothing I could do. If I didn’t hand in my paper on time, I would get an F and fail the course. However, I had to study for 3 major exams and write two other papers. My roommate suggested that I turn the paper over to you guys, which I did, and voila! I got an A+ on it and the problem was solved. Thank you, EssaysEmpire.com and to your writers and staff. You are a great writing service. |
![]() |
Trilly M.
Spokane, WA
|
|
I just had to let you know how much I appreciated receiving a paper back that was of quality that high. I will recommend your writing service to other people I know. You guys do great work. |
![]() |
Kris K.
San Francisco, CA
|
|
I would like to say thanks to writer #48376 for doing such an astonishing job on my paper. I really gave him very little to go on. Still, he was able to do the research and come up with a champion paper for me. I am speechless. I didn’t expect anything nearly this good. |
![]() |
Glynnis H.
Ft. Smith, AR
|
|
Hello! I just had to stop what I was doing to let you know how grateful I am that I found your excellent writing service. I have had to use you three times now, and each time, I have been 100% satisfied with the work that you did. Your writers are absolutely outstanding. I am very, very happy with everything you have written for me. |
![]() |
Cleo P.
Oakland, CA
|
|
I submitted my order as a ‘rush order’. I only had 2 days to get my paper finished and I just felt like I was sinking. I didn’t understand the material I was writing about, and I didn’t know what I was going to do. My friend recommended EssaysEmpire.com. I had very little lost by attempting to use this writing service, so I did. It was an excellent move on my part, because, not only was my paper finished on time. It was also excellently written. I will always be grateful to my friend for recommending your service. It is wonderful. |
![]() |
Willow P.
Park City, UT
|
|
You guys do top-notch work. Time after time, I have had to rely on your help and I can say honestly that you have never let me down. Thank you so much for coming through for me every time. I am not a good writer. I try. I study hard, but when I need help, you are always there to give it to me at an affordable price. |
![]() |
Mike G.
Rochester, NY
|
|
Your writing service is different from other writing services. Yours is the only one I have ever dealt with that I can truthfully say is legitimate. The staff is very professional. The writers are the best in the business. I am pleased with the results of my last three orders and plan to return for more soon. |
![]() |
Carolyn C.
Norman, OK
|
|
My paper was completed 3 days earlier than I had requested it. It needed no revisions and was much better than I had imagined. Thanks, EssaysEmpire.com! |
![]() |
Mark R.
Seattle, WA
|
|
I am so happy with my term paper. The writer did a spectacular job!! Thanks to the writing team and also to the customer service team. |
![]() |
Sylvia B.
Lakeview, MA
|
|
Your writers did an excellent job writing my four papers last semester. I don’t think I could have possibly made it through the semester without any help of EssaysEmpire.com. I deeply appreciate the help |
![]() |
Emily H.
Norman, OK
|
|
My writer revealed to me that when he isn’t working for you, he is teaching at a major university. He also told me that a lot of the other writers who work for you are professors. That is impressive! No wonder I got an A+ on my paper! |
![]() |
Ohjasi O.
Tokyo, JP
|
|
The essay that your writers turned out for me far exceeded what I was expecting. It even came with a plagiarism report to prove that it was original. The customer service center was the picture of perfection, too. I loved everything about using EssaysEmpire.com and plan to use your services again. You are one class act! |
![]() |
Sylvia S.
Ardmore, OK
|
|
Dear EssaysEmpire.com, Over the last couple of years, I have used your writing service for a total of five times. I have never had the same writer twice, but I have had excellent results with the writers who were assigned to my projects. I could easily recommend you guys. You’re the greatest! |