What is role of expectations in interest rate determination

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Reference no: EM131185081

a. The Adjustment for Risk & Volatility is designed to cover expected losses and provide higher risk-adjusted returns for each loan grade. Lenders have a base rate and then factor in credit risk. What are some other things considered when making adjustments?

b. What is the role of expectations in interest rate determination? How do expectations affect real and nominal interest rates? How and why do lenders make interest rate adjustments? How does this affect borrowers?

c. How does inflation impact interest rates, both on the borrower and the lender side? If inflation is going up faster than expected, would you rather be a borrower or a lender.

Reference no: EM131185081

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