Department of Accounting, Finance, Healthcare Administration, and Information Systems
Money, Banking and Monetary Policy (FINC 323-D1)
This homework assignment is intended to assess students’ understanding of interest rates and how the level of interest rates directly impacts the economy. You need a copy of the report submitted by your group for the Class Project to complete a section of this assignment. Please read each question carefully before you begin to answer that question. Students must provide clear and concise answers to all questions. Again, please treat this exercise as extremely important. In addition to the contribution towards your course grade, it will be used to judge the quality of your degrees as a graduate of the FSU business program. This assignment is due by 11:30 p.m. on 11/17/15.
Learning Goal 3: Relate the understanding of interest rates to the effective functioning of the financial system.
Assessment Rubric:
Objective: Students demonstrate an understanding of how interest rates are determined and the effect of interest rates on the economy.
Outcomes
Exemplary
Acceptable
Unsatisfactory
Identify factors that affect interest rates and explain how interest rates are influenced by these factors
Correctly identify the factors and clearly explain how those factors influence interest rates.
Correctly identify some factors that influence interest rates and only partially relate the effect of the factors on the level of interest rates.
Unable to identify and relate the effect of various factors on interest rates.
Demonstrate an understanding of the theories that explain interest rates
Identifies theories of interest rates and provide lucid explanation of how the theories relate to various the yield curves
Identify theories of interest rates and provide incomplete explanation of the term structure of interest rates
Not able to identify the theories of interest rates and unable to provide a coherent explanation of the term structure of interest rates.
Relate the level of interest rates to level of economic activity
Clearly outline the basis for and the effect of the Federal Reserve interest rate policy options
Identify reasons for Federal Reserve interest rate decisions with some explanation of their implications
Unable to explain the effect of Federal Reserve interest rate policy decisions.
Trait 1
Identify factors that affect interest rates and explain how interest rates are influenced by these factors
1.
List four factors that influence interest rates and briefly explain how each either, cause interest rates to increase or decrease. (60 points)
i.
ii.
iii.
iv.
v.
vi.
Trait 2
Demonstrate an understanding of theories that explain interest rates. (Identify your group, and the month and year of the data you use in parts ‘a’ and ‘b’ below).
2.
a.
Select and identify one of the yield curves prepared by your group. Identify and clearly describe one theory of interest rates and then explain how that theory relates to the yield curve you select. (25 points)
b.
Select a second yield curve; use your interpretation of the yield curve you select and the data used to plot that curve to draw your own conclusion about the implication of that yield curve – including the relationship between current and future interest rates. (30 points)
c.
List and briefly describe all benefits you derived by participating in the group assignment on interest rates (15 points)
Trait 3
Relate the level of interest rates to level of economic activity.
2.
a.
What are the implications of the Federal Reserve lowering interest rates? Explain (including what might cause the Federal Reserve to take such an action). (25 points)
b.
What are the implications of the Federal Reserve raising interest rates? Explain (including what might cause the Federal Reserve to take such an action). (25 points)