Foundations of Finance and Investment - Essay Example

Only on StudentShare

Extract of sample
Foundations of Finance and Investment

The Repo rate is the short-term interest rate at which financial institutions such as banks and building societies can borrow money from the BOE for a two-week period. The MPC meets monthly to set the Repo rate as part of its monetary policy function to control inflation. Its decision on what this rate should be acts as a signal to the money markets of how much to pay savers and charge borrowers for the use of money. The Repo rate therefore acts as the baseline for the cost of money that can be loaned to customers, which can include other banks, in the form of mortgages and overdrafts (BOE, 2005).
Many households and firms, however, borrow for longer time periods and prefer to fix borrowing costs in advance, either because this helps them plan their cash flows better or protects them from the future risk of rising interest rates. This is a gamble some lenders and borrowers take, since interest rates may also move the other way. Fixed long-term borrowing or interest rates are relevant to those who want fixed-rate mortgages for housing or to firms with long-term investment plans like expanding a factory that needs some years to pay off. Long-term interest rates ranging from one to ten years are calculated simply by taking an average of forecast short-term interest rates over the desired period.
Short- and long-term interest rates are closely related, but differ on the basis of MPC decisions; the expectations of h ...
Download paper


The Monetary Policy Committee (MPC) of the Bank of England (BOE) decided in April to keep the Repo rate at 4.50% (BOE, 2006). Forecasts by over forty City and non-City financial institutions showed a rate lower by 25 basis points at year-end, with a median forecast of 4.25% (HMT, 2006)…
Author : juneleannon

Related Essays

Opportunities & Threats in Gold & Oil Investments
According to the research findings with the ever increasing uncertainties regarding the overall global economic and fiscal outlook, the investment strategies have also experienced some major changes. It is actually belief and confidence of the people that changes as the time and situation changes. As a result, the real value of the investment changes with the perception of the people. The real worth or substance remains the same, however, the other party to the transaction perceives it to be either on a higher side, lower side or at a stable level. In short, the substance of the investment...
10 pages (2510 words) Research Paper
Term paper_INB 5807 - Foundations of Global Business
This paper seeks to evaluate institutional environments of Turkey as a developing nation, and those of Germany as a developed country, and critically analyze how these environments impact stability and development of these countries. Political Environment Germany is a federal republican economy with republican form of government where there is division of powers between the federal government and the government of individual subdivisions. Turkey on the other hand has the parliamentary system of democratic governance where the executive derives its democratic legitimacy and is held accountable...
4 pages (1004 words) Article
Foreign Direct Investment
In addition, the continuous change in technology also pushed for firms penetrating other markets. For most trans-national corporations (TNCs), the schemes associated with maximising foreign direct investment (FDI) are intricate. These processes are developed through time considering the environmental changes and other circumstantial elements. Logically, the methods in which FDI is maximised by TNCs can be attributed to their nature and existence.
12 pages (3012 words) Essay
Macroeconomic in Finance
These models also highlight the interrelatedness of variables in the economy, which is one of the core concepts in contemporary macroeconomics.
8 pages (2008 words) Essay
Foundations of Finance and Investment Essay
This paper would go to analyse the Impact on UK exchange rate against US$ over last five years due to recent MPC's 1 cut on interest rate.
6 pages (1506 words) Essay
Got a tricky question? Receive an answer from students like you! Try us!