The Money and Capital Markets in the United States

On the other(a) hand, long-run take set outs are affected much by the expectations of investors participating in the crownwork merchandises. If investors believe that inflation will increase in the future, they will demand a spunky return on their investments, thereby causing long-term interest judge to increase (Renshaw, 1997).

While interest judge in the United States present been highly variable over the 1995-1999 comprehensive period, the magnitude of this variability has been relatively low. Thus, interest rates drop tended to be relatively stable, shifting within a hold approximating two percentage points. The 90-day Treasury bill rate in November 1996, as an example, was 5.4 percent, while the 90-day Treasury bill rate at the close on 11 October 1999 was 5.05 percent ("Data Bank," 1999). The sound management of inflation by the Federal Reserve, the introduction of pecuniary stability in the operation of the federal government, and the efficiency of the capital markets in the United States largely explain interest rate stability in the United States during the inclusive 1995-1999 period (Makien, 1999).

From the lieu of the investment community, own(prenominal) wealth will vary as the capital markets change. A rising stock and stick market typically means an increase in the value of personal investments. This, in turn, increases confidence levels and fuels spending

Makien, G. (1999 June). menses economic conditions and selected forecasts. Washington: Congressional Research Service.

. This is the situation that, for the almost part, has prevailed throughout the inclusive 1995-1999 period. By contrast, a sharp ignore in the capital markets, together with the ensuing contraction of plus value, causes investors to retrench, and, in turn, tends to be followed by a decrease in consumer spending. Money market and bond market changes also have an impact on interest rates, as well as the reverse relationships between the variables (Renshaw, 1997).

An increase in interest rates, other factors remaining equal, can be expected to cause bundle prices on the stock market to fall. Rising interest rates imply that investors can earn more money in the bond market.

Thus, the generally lower level of risk associated with high quality bonds in relation to the level of risk associated with fair-mindedness percentages causes investors to shift funds away(p) from the stock market and toward the bond market when interest rates rise. Shifting funds away from the stock market lowers demand for equity shares, and in turn, lowers share prices. None of these outcomes have occurred for any extended length of sequence during the inclusive 1995-1999 period (Makien, 1999).

All markets are interconnected. If interest rates rise, stock prices typically decrease because other investments (interest-bearing) become more attractive to investors. When interest rates fall, stock prices typically increase. This latter(prenominal) situation has prevailed throughout the inclusive 1995-1999 period as a trend, although, as is true in all periods of any existent duration. Fluctuations occur in market indexes. By way of fiction of the capital market experience for the inclusive period 1995-1999, however, the Dow Jones industrial Average on 25 September 1996 closed at 5,877.4. On 11 October 1999, the Dow Jones Industrial Average closed at 10,648.2. The 52-week high from October
Ordercustompaper.com is a professional essay writing service at which you can buy essays on any topics and disciplines! All custom essays are written by professional writers!