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7. Determinants of market interest rates Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: Characteristic Component Symbol Over the past several years, Germany, Japan, and Switzerland have had lower interest rates than the United States due to lower values of this premium. This is the rate on short-term US Treasury securities, assuming there is no inflation. It is based on the bond's rating; the higher the rating, the lower the premium added, thus lowering the interest rate. This is the premium added to the equilibrium interest rate on security that cannot be bought or sold quickly enough to prevent or minimize loss. As interest rates rise, bond prices fall, and as interest rates fall, bond prices rise. Because interest rate changes are uncertain, this premium is added as a compensation for this uncertainty. This is the rate on a Treasury bill or a Treasury bond. Real risk-free rate Maturity risk premium Inflation premium Default risk premium Nominal risk-free rate Liquidity risk premium