Copyright

Ch 3: Interest Rates, Rate Changes, & Risk Structure

About This Chapter

This entertaining chapter offers a fun and engaging overview of interest rates, rate changes and risk structure. Explore short lessons and take multiple-choice quizzes to improve your comprehension of these topics and enhance your ability to excel on a future assignment, test or project.

Interest Rates, Rate Changes, & Risk Structure - Chapter Summary

If you need help understanding the basics of interest rates, rate changes and risk structure, you've reached the right place! This chapter is filled with bite-sized lessons you can study any time to gain greater insight into interest rate risk, the term structure of interest rates, how to solve interest rate problems and more. Study these lessons at the pace that works for you, and take accompanying quizzes to find out how well you grasp key concepts. Use our chapter exam to ensure you have a complete understanding of every lesson. Once you've finished this chapter, you will be ready to:

  • Define and list types of interest rates
  • Outline the history of the federal funds rate
  • Explain how banks are able to borrow funds from the federal government
  • Share how the Federal Reserve impacts interest rates and changes the money supply
  • Differentiate between and define real and nominal interest rates
  • Exhibit knowledge of money demand and interest rates
  • List different types of investments and interest rates
  • Explain differences between short and long-term interest rates

13 Lessons in Chapter 3: Interest Rates, Rate Changes, & Risk Structure
Test your knowledge with a 30-question chapter practice test
What is Interest Rate? - Definition, Types & History

1. What is Interest Rate? - Definition, Types & History

Everything costs money, even money. In this lesson, you'll learn about interest rates - specifically, what they are, how they are determined, and what they mean for an individual and an economy.

Federal Funds Rate: Definition & History

2. Federal Funds Rate: Definition & History

The Federal Funds Rate is one of a few important rates that banks use. In this lesson, you'll learn what the federal funds rate is and what it means to you.

The Discount Rate & Monetary Policy: How Banks Can Borrow Money from the Federal Reserve

3. The Discount Rate & Monetary Policy: How Banks Can Borrow Money from the Federal Reserve

Learn more about the discount rate, which is the rate that banks pay to the central bank when borrowing money. This lesson explains how changes in the discount rate affect the money supply and how the central bank can use the discount rate as part of monetary policy.

How the Federal Reserve Changes the Money Supply and Affects Interest Rates

4. How the Federal Reserve Changes the Money Supply and Affects Interest Rates

Discover the connection between the money supply and economic output and how the central bank's tools lead to an increase or decrease in real GDP via expansionary and contractionary monetary policy.

Real vs. Nominal Interest Rates and Changes in Prices

5. Real vs. Nominal Interest Rates and Changes in Prices

This lesson explains the important difference between nominal and real interest rates and provides examples of how to use the Fisher equation to adjust nominal rates for inflation.

Money Demand and Interest Rates: Economics of Demand

6. Money Demand and Interest Rates: Economics of Demand

Learn about the differences between money, wealth and income and explore the factors that determine the demand for money in an economy. Take a look at the demand curve for money as well.

Interest Rate Risk: Definition, Formula & Models

7. Interest Rate Risk: Definition, Formula & Models

Interest rate risk is really the risk of two different events (price reduction and reinvestment rate reduction) caused by a change in interest rates. Interest rate risk affects bond investments, but the good news for bond investors is that it can be mitigated or eliminated.

Types of Interest Rates & Investments

8. Types of Interest Rates & Investments

Ever wonder how to make any sense out of all those investment options you constantly hear about? This lesson helps provide some understanding, as well as introduces the concept of the real interest rate.

Term Structure of Interest Rates: Definition & Overview

9. Term Structure of Interest Rates: Definition & Overview

In this lesson, you will learn the definition of the term structure of interest rates and its related concepts. The behavior of this fundamental benchmark of interest rate is followed by all the economic agents in the setting of the macro economy.

Short vs. Long Term Interest Rates: Differences & Significance

10. Short vs. Long Term Interest Rates: Differences & Significance

After reading this lesson, you will understand why long-term interest rates are usually higher than short-term interest rates. You will also see some examples of why this makes sense.

How to Solve Interest Problems: Steps & Examples

11. How to Solve Interest Problems: Steps & Examples

If you want to know how your money can earn money, then it's essential to learn about solving interest problems. In this lesson, we'll practice calculating interest amounts and interest rates.

Nominal Interest Rate: Definition & Equation

12. Nominal Interest Rate: Definition & Equation

Understanding interest rates is a vital part of personal and business financial management. In this lesson, you'll learn about the nominal interest rate and how to calculate it from different perspectives. A short quiz follows the lesson.

Real Interest Rate: Definition & Calculation

13. Real Interest Rate: Definition & Calculation

An investment that pays 10% interest doesn't guarantee that you'll have a 10% increase in purchasing power. In this lesson, you'll learn about the real interest rate and how to calculate it.

Chapter Practice Exam
Test your knowledge of this chapter with a 30 question practice chapter exam.
Not Taken
Practice Final Exam
Test your knowledge of the entire course with a 50 question practice final exam.
Not Taken

Earning College Credit

Did you know… We have over 160 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Support