The Interest Rate Spread Is the Difference Between

question 18

Multiple Choice

The interest rate spread is the difference between

• A) a nominal rate and a real rate of interest.
• B) a benchmark rate and the effective lower bound.
• C) a benchmark rate and a related market interest rate.
• D) the key policy rate and the official interest rate
• E) the upper and lower bound of the operating band.

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Definitions:

External Financing Need

The requirement for funds that a company must fulfill through external sources, like equity or debt, to finance its operations beyond what it can fund through its internal cash flow.

Full Capacity

The maximum level of output that a company can sustain over a long period without increasing its fixed costs.

Capital Intensity Ratio

A financial metric that measures the amount of capital needed per unit of output or the capital required to generate a dollar of revenue.

Operating Capacity

The maximum output that a company can produce under normal conditions.