The Prime Interest Rate

question 34

Multiple Choice

The prime interest rate:

• A)affects investment spending while the overnight rate affects consumption spending.
• B)affects consumption spending while the overnight rate affects investment spending.
• C)has no effect on exchange rates and net exports.
• D)affects investment spending while the overnight rate affects overnight borrowing of bank reserves.

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Definitions:

Short-Term Debt

Borrowings that are due for repayment within one fiscal year or operating cycle.

Marketable Trading Investments

Financial assets that are purchased with the intention of selling them in the short term to profit from price fluctuations.

Unrealized Loss

A decrease in the value of an investment that has not yet been sold and therefore not officially recorded as a loss in the accounting records.

Realized Losses

Refers to the loss recognized when assets are sold for a price lower than their original purchase price.