Keeping Interest Rates Stable Is

question 34

Multiple Choice

Keeping interest rates stable is:

• A)The most important goal for a central bank
• B)The focus of the central bank, stable interest rates will result in all other goals being achieved
• C)A secondary goal for central banks
• D)Not a goal of the central bank

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Definitions:

Interest-Rate Risk

Interest-Rate Risk refers to the risk of investment value changing due to fluctuations in the absolute level of interest rates, which can negatively affect fixed-income securities.

Price Risk

The risk that the price of an asset will change negatively, impacting the investment's value and potentially leading to financial loss.

Reinvestment Risk

The risk that future cash flows (like interest or dividends) will need to be reinvested at a lower return than the original investment.

Coupon Bond

A type of bond that pays the holder a fixed interest payment (coupon) at regular intervals until the bond reaches its maturity date.