• Unit 3: Money and Bond Markets

    This unit outlines the interest rate structure, money market securities, and different bond markets, including the Eurobond market. In this unit, you will investigate the genesis of interest rates and their role, specifically in the short-term and long-term fixed-income markets.

    Completing this unit should take you approximately 3 hours.

    • Upon successful completion of this unit, you will be able to:

      • describe the dynamics that define interest rates in debt markets, such as central banks, commercial banks, and maturity rates;
      • compare money markets and bond markets by examining the terms of the debts they contain; and
      • differentiate between domestic bonds, Eurobonds, and foreign bonds.

    • 3.1: Rate of Interest and Credit Ratings

      • Interest Rate Determination Book

        Here, you will learn about determining interest rates and how supply and demand play a role in determining interest rates. Pay attention to the Fed's role in this determination and to the effects of the increase of money supply on interest rates. What are the determinants of interest rates?

      • More on Interest Rates Book

        When investing in bonds, understanding their yield is of utmost importance. They reflect the length and interest to be paid to the investor. Here you will learn why yields are indicative of investors' expectations. How would you estimate interest rates in the future using the yield curve?

      • Fixed-Income Securities Page

        Fixed-income securities provide investors with fixed periodic interest and the return of principal upon maturity. What are the different types of fixed-income securities?

    • 3.2: Money Markets

      • Demand, Supply, and Equilibrium Book

        Here you will understand the relationship between money markets and interest rates. You will also come to learn how real GDP has an effect on the demand for money. What effect does interest rate have on the demand for money?

      • Demand, Supply, and Equilibrium in the Money Market Book

        We have discussed the role of supply and demand in the money market, and we have seen how it has an effect on interest rates as well. Here, you will learn how transfer costs and expectations can affect demand. What is Keynes' theory with regard to the relationship between investment in bonds and money?

    • 3.3: Bond Markets

      • Bond and Foreign Exchange Markets Book

        As you have already learned, bonds are used to finance specific projects or operations of the issuer. Through these bonds, the issuer is obligated to make payments on the bond in the future. But what determines the bond's price, and what determines the interest paid?

        Along with bonds, some investors may consider investing in foreign currency. While doing so, there are a few determinants of what rate currencies will be exchanged. What are these?

      • Bonds and Bond Markets Book

        This reference will provide you with detailed information on the different bonds and bond issuers. Pay close attention to those issued by corporations. When and why would a corporation issue bonds with covenants?

      • Types of Bonds Book

        Here, you will learn more about the different types of bonds, from zero-coupon bonds to Yankee bonds. What is the relationship between bonds and interest rates?

    • Unit 3 Study Resources

      This review video is an excellent way to review what you've learned so far and is presented by one of the professors who created the course.

    • Unit 3 Assessment

      • Unit 3 Assessment Quiz
        Receive a grade

        Take this assessment to see how well you understood this unit.

        • This assessment does not count towards your grade. It is just for practice!
        • You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
        • You can take this assessment as many times as you want, whenever you want.