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  3. each question is worth 15 marks total marks 60 formula...

Question: each question is worth 15 marks total marks 60 formula...

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Each Question is worth 15 marks (Total Marks: 60) Formula Sheet is provided at end of paper Question B1. (15 marks) In terms of the outlook for Australian interest rates, the talk in recent months has all been about the next move being upwards. Booming employment growth and signs that business investment is picking up, along with strong economic conditions abroad and monetary policy tightening from the US Federal Reserve and Bank of Canada, has seen talk of rate hikes go from a whisper to a roar. Markets have priced in a rate hike by the end of the June quarter next year. (https://www.businessinsider.com.aurba-interest-rate-cuts-october-2017-10) a) Explain briefly why policy tightening overseas is relevant to the interest rate decision of the RBA. (Hint: Use the FX spot rate and its impact upon the economy in your explanation.) for the cash rate is relevant for long-term interest rates. diagram) if the market adjusts its expectations towards a rise in the RBA cash rate (4 marks) b) Use a suitable theory of the yield curve to explain very briefly why the RBAs decision (3 marks) c), Sketch a typical yield curve. Show how this yield curve changes (add a new one to your target next year (4 marks) d) Explain how the RBA increases the actual interest rate to reach-its target. Provide enough detail to cover ESF, cash rate, interbank overnightborrowing, OMO, and bonds. (4 marks)
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