AuthorTopic: Money Supply
@2007-04-30 09:58:53
I have a small confusion regarding the Fed and Money Supply-
If the fed wants to cut on MS, it will sell bonds. Ppl will buy bonds, so interest rate will rise.
My question: Is the relation btw bonds' prices and int. rates a two way relation, i.e, do supply of bonds decrease in. rates? or int. rates determines prices only.
In addition, given that int. rates rise, how will banks be able to maintain the high cost of funds given Invest. (and thus, lending) will decrease?

I appreciate your cooperation and wish u all the bset.
@2007-04-30 20:29:45
banks can always amintain their share of profit by "spread" and make their life working.

u r confusing int rate with price of them which is not at all needed for ur understanding of how bonds work.any ways int rate will increase as the fed is trying to curb the supply of money otherwise ppl wont bother to pur bonds.

nd price will be not issue for bonds its their interest portion which matters to ppl .


CFA Discussion Topic: Money Supply

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Colin Sampaleanu

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