Question

A Bank’s Chief Economist is forecasting a substantial decrease in money market interest rates over the next 4 weeks. Assuming the Chief Economist is correct in her forecast, what would you recommend to Harris Bank’s funds management department regarding how and where to raise the money needed? Explain why you make this recommendation

Answer 1

Answer:

In the event that there is a considerable or substantial decrease in the money market interest rates over next a few weeks, I would encourage the bank to fund-raise through the money market instruments since this money market instruments are for the most part debt instruments which will be useful in extension and the development of the organization in the short run and since quite a while long run also, and I would be attempting to instruct the administration with respect to the organization to acquire or borrow the long term loan which would be generally taken on a lower rate of interest so the bank will have the option to help itself in making a higher amount of profit since it has obtained at a lower rate of interest.

These instruments are proposed for generating funds for the business in by and large shorter period through business or commercial papers for short term and treasury bills so the bank which is in desperate need of short term funds would be attempting to raise the working capital through the money market instruments, which has gone less expensive in light of reduction in the financing costs or interest rates so those banks ought to be attempting to profit as indicated by their necessities because of the diminishing in the interest rate in the money market.