ECON 3430 Chapter Notes - Chapter 7: Canadian English, Substitute Good, Dbrs

• School: York University
• Department: Economics
• Course: ECON 3430
• Professor: Brenda Spotton- Visano

Document Summary

The risk and term structure of interest rates. Borrowing is fundamental to the structure of capitalist economies: firms rely on borrowing to finance investments in plant and equipment and to finance working capital; house- holds rely on borrowing to buy houses, cars, and other durable goods. Governments borrow to finance infrastructure development or cyclical deficits. The instruments that are used differ bonds, commercial paper, credit cards, mortgages but crucial to each is the interest rate and the risk attached to the loan. The lucky few who predicted the crisis (and acted on that prediction!) did well, but the majority of investors were made much worse off. But while prices for many assets fell, there were also tremendous changes in relative asset prices. In the bond market, some interest rates plummeted while others soared. Changing bond prices have a pronounced effect on the borrowing costs that corporations and governments face.