Question

In: Accounting

Compare the interest rate risk of Bitcoin price to the interest rate risk of prices of...

Compare the interest rate risk of Bitcoin price to the interest rate risk of prices of other assets, such as bonds, stocks or properties

Solutions

Expert Solution

Interest  rate risk differences

Volatility

Bitcoin   - Bitcoin growth and fail is extremely volatile hence the interest rate is also not stable

Other assets   - other assets such as debentures offers a steady rate of interest rate and hence are more stable and less volatile. They generally offers a predetermined rate of interest.

Currency or commodity category                

Bitcoin  

They are not classed in any of the category, such as they does not fall in currency category and neither considered as a commodity.

Since they are result of mining they are treated as a cryptocurrecny and hence they does not recognized by any government and hence they have high risk related with the rate of interest.

Other assets

Other assets are classified as currency or commodity and are actually governed by a body and hence there exists a less risk with the interest rate.                             

No fixed rate of interest

Bitcoin  

Since bitcoin is much volatile it does not offers any fixed rate of interest and hence this is high risky .

Other assets                                

Other assets such as debentures generally have a fixed rate of interest and hence they are safe to invest.

Estimation of income

Bitcoin

In case of bitcoin the risk of estimating the earning is very high as it operates in a volatile market.

Other assets     

In other assets we can easily estimates the future earnings as the rate of return is generally fixed.


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