Explain why the interest rate is the opportunity cost of holding currency. What is the benefit of holding currency?
The nominal interest rate on currency is zero. The next best alternative is to buy a bond and earn interest. Currency is used as a medium of exchange. Bonds are illiquid and so are costly to convert to a medium of exchange.
Economics
You might also like to view...
When an insurance company makes a direct loan to a firm, the loan is known as
A) a private placement. B) a commercial paper. C) an account receivable. D) an account payable.
Economics
When the Federal Reserve ________
A) drains liquidity, the federal funds rate falls B) drains liquidity, real interest rates fall C) provides more liquidity, the federal funds rate falls D) all of the above E) none of the above
Economics