If two short-term assets offer different interest rates, then investors will move their wealth towards the asset with the lower return. There is no practical difference between long-term interest rates and short-term interest rates. If long-term interest rates fall, new homeowners can afford more expensive homes. Interest rates on financial assets that mature in ten months or less are long-term interest rates. The opportunity cost of holding money falls when short-term interest rates fall. True/false

Question

Jamison Daniel

Business

7 September, 05:13

If two short-term assets offer different interest rates, then investors will move their wealth towards the asset with the lower return. There is no practical difference between long-term interest rates and short-term interest rates. If long-term interest rates fall, new homeowners can afford more expensive homes. Interest rates on financial assets that mature in ten months or less are long-term interest rates. The opportunity cost of holding money falls when short-term interest rates fall. True/false

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Answers (1)

Know the Answer?

Reece Robles · Answer 1

1. False

2. False

3. True

4. False

5. True

Explanation:

If short term assets give different rates then the investor will move wealth towards higher returns as he can make profit in a short term.

The practical difference between both interest rates are the payback time. Short term has lesser interest paid while long term has high interests paid.

It will be beneficial for home owners if the long term interest rates fall.

Long term interest rates are charged on the loans that are borrowed for more than one year. Short term interest rates are for loans within a period of ten months to one year.

The value of the money becomes lesser when the money is held without any investments as the short term interest rates falls.