Which of the following factors influence short-term interest rates on government securities?
I. Federal Reserve actions
II. interest rate risk
III. expected future inflation
IV. the real rate of return
A) I and III only
B) II and IV only
C) I, II and IV only
D) I, III and IV only

Question

Quizplus · Accepted Answer

Federal Reserve actions directly influence short-term interest rates through monetary policy. Expected future inflation impacts interest rates as lenders demand higher returns to compensate for decreased purchasing power. The real rate of return is a fundamental factor determining interest rates, reflecting the true profit after accounting for inflation. Interest rate risk primarily affects the price and yield of long-term securities rather than the setting of short-term interest rates.

Which of the Following Factors Influence Short-Term Interest Rates on Government