Economic conditions and trends regarding a changing interest rate environment

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Using the Wall Street Journal, select an article about the current economic conditions and trends regarding a changing interest rate environment. How would bond values change over time? As a bond investor, what measures would you take to manage rate risk based on current economic conditions and the current interest rate trends? Select an article to justify your position.

Sample Solution

The current economic environment is one of uncertainty as global markets continue to grapple with the effects of the COVID-19 pandemic. This has led to a changing interest rate environment where certain countries have resorted to quantitative easing and other stimulus measures in order to reduce borrowing costs which ultimately affects bond values. According to an article published in The Wall Street Journal, “the U.S. Federal Reserve cut its benchmark overnight lending rate by 0.5 percentage point on March 3rd, marking its second emergency move since the coronavirus crisis began” (Buhman et al., 2020).

In general, when interest rates decrease this leads to an increase in bond prices; conversely, if rates were likely to rise then bonds would become less attractive investments and their value would subsequently decline. To illustrate this further let us assume that an investor currently owns a 10-year Treasury bond with a coupon rate of 2%—if market conditions lead to a reduction in interest rates over time then this particular security could become more valuable as it becomes comparatively more attractive than any newly issued securities.

On the other hand, should rates start increasing then investors may find it beneficial to sell their bonds at current levels before they lose value due to unfavorable changes taking place in the financial system; which is why it is important for investors who own long-term bonds or are looking into purchasing them be aware of macroeconomic trends so they can make informed decisions regarding their investments.

Lamb, S (1997) portrays the idea that poor literacy and numeracy achievement is linked to early school leaving and periods of unemployment. Evidentially, having the key fundamental skills in numeracy and literacy are essential. Students should not be able to leave school without the very minimum knowledge to be able to implement these skills in all aspects of life. Quinn, R (2011) stated that literacy and numeracy are amongst the most important life skills that schools teach. Without these skills, students would not be able to access the different subject areas; moreover be successful and have a positive effect on society. The importance’s of these skills are the responsibility of each individual subject area and should not just be thought of as being a focus for the English and Mathematics departments.

Numeracy is defined as ‘the ability to use mathematics in everyday life’ (National Numeracy, 2015). Not being able to apply mathematics in life would result in not being able to carry out the simplest of tasks needed every day. For example, being able to count change or telling the time. Besides, regardless of the subject, the National Curriculum states that being confident in numeracy and other mathematical skills is a necessity to help students be successful across the curriculum. (DfE, 2014, p.9). Undoubtedly, by incorporating basic numeracy skills in my lessons, I am not only preparing students to be successful in education but for everyday life tasks.
In the activities to be conducted, a basic knowledge of numeracy is crucial in order to solve simple programming tasks, where students are required to use standard arithmetic operators and data types. Furthermore, students need to know about these basic skills for example; adding or subtracting two integers together in order to be able to work out whether the output from their program is c

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