There have been a few episodes of negative nominal interest rates around the world

PART A.

Problem 1.

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There have been a few episodes of negative nominal interest rates around the world. For example, the Swiss nominal policy​rate, the Swiss equivalent of the federal funds​ rate, was negative in 2014 and 2015. Some negative nominal interest rates may or may not be in play as you work on this assignment.

Answer the Following Questions:

1. If so, why not hold cash instead of bonds?
2. What are the effects of a negative real interest rate on borrowing and lending?

Problem 2.

Look up the latest issue of The Economist (Links to an external site.). Click on “Weekly Edition” and scroll down to the section “Economic & financial indicators: Economic data, commodities, and markets.” Use the percentage change in consumer prices as a measure of the expected rate of inflation and the interest rate on 10-year government bonds as a proxy for the nominal policy interest rate.

Answer the Following Questions:

1. Which countries have the lowest nominal interest rates?
2. Which countries have a negative nominal interest rate, if any?
3. Which countries have the lowest real interest rates? Are some of these real interest rates negative?

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