Interest rate has reached historical low and its likely to persist given that global central bank...

Interest rate has reached historical low and its likely to persist given that global central bank policy is likely to stay accommodative in coming years. Using your learning from multinational finance, illustrate your understanding with sound mind map of the interest rate ecosystem.

Expert Solution

Interest rate has substantially gone down as Federal reserve is adopting an agressive quantitative easing approach and a highly dovish monetary policy.

There has been a high level of uncertainty due to Covid 19 concerns and the consumer demand has shrunken considerably .There has been a wide speculation of an impending global recession and Federal reserve is adopting every measure of quantitative easing to counter that.

Interest rates are one of the tools used by federal reserve to control the money supply in the whole economy. The Interest rates are cut,when there is lack of consumer demand and cutting of interest rates help in stimulation of consumer demand.

Cutting of interest rates also mean that easy credit is available at a very low rate of interest.This is a part of dovish monetary policy.

Interest rates are raised in case the central banks want to control the supply of money and decrease it.The Interest rates are raised to counter inflationary situations,When the consumer demand is too high and that leads to prices of goods and services going higher.

In the current economic scenario amid fears of Coronavirus central banks have taken drastic measures to cut interest rates to zero and they are also highly motivated to take it to negative territory.Central banks believes that such an aggressive policy is needed to revive global demand.So,cutting of interest rates is one of the measures taken by central bank to increase the supply of money and demand and keep economy afloat and avoid a recession.

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