An Inflation Rate Targeting Rule

question 5

Multiple Choice

An inflation rate targeting rule

• A)has been adopted by the Reserve Bank in response to the financial crisis of 2008- 2009.
• B)will not work if the Reserve Bank continues to use open market operations.
• C)reduces uncertainty about monetary policy.
• D)means that the inflation rate must exceed 5 per cent in order for the rule to be effective.

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Definitions:

Coupon Rate

The coupon rate is the annual interest payment made to bondholders, expressed as a percentage of the bond's face value.

Par Value

The nominal or face value of a bond, share of stock, or coupon as stated by the issuer; it is often a minimal amount like $0.01 or $1.00.

Matures

The point in time when a financial obligation, such as a bond or loan, reaches its due date and the principal amount must be repaid to investors or creditors.

Subordinated Debt

A type of loan ranked below other loans with respect to claims on assets or earnings in the event of a liquidation or bankruptcy.