Reference no: EM131016058
Assume that the following two events occur at the same time.
Foreign investors (including some foreign governments) decide to rebalance their portfolios, replacing U.S. Treasury securities with higher yielding bonds issued by several European countries.
New economic data suggests that inflation over the next year might be lower than previously expected.
Will nominal interest rates on newly issued securities increase, decrease, or remain unchanged? Your answer should identify the impact of each event individually as well as the combined effect of the two events on interest rates.
Will nominal interest rates on previously issued (fixed interest rate) securities increase, decrease, or remain unchanged? Your answer should identify the impact of each event individually as well as the combined effect of the two events on interest rates.
Will real interest rates on newly issued securities increase, decrease, or remain unchanged? Your answer should identify the impact of each event individually as well as the combined effect of the two events on interest rates.
Will real interest rates on previously issued (fixed interest rate) securities increase, decrease, or remain unchanged? Your answer should identify the impact of each event individually as well as the combined effect of the two events on interest rates.
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