Assume that debt contracts are written in nominal terms (no inflation adjustment is written into debt contracts). If the actual inflation rate turns out to be lower than the expected inflation rate:

A.

Borrowers and lenders will be unaffected since the actual inflation rate will have no impact on the nominal interest rate.

B.

Borrowers and lenders will both be worse off than expected since plans are made based on expectations regarding the inflation rate.

C.

Borrowers will be better off than expected since the real cost of borrowing turned out to be lower than expected.

D.

Borrowers will be worse off than expected since the real cost of borrowing turned out to be higher than expected.

Which of the following are typically traded financial securities?

A.

Stocks, CDOs, bank loans

B.

Student loans, bonds, stocks

C.

Private equity, bonds, CDOs

D.

Bonds, stocks, bank loans

E.

Private equity, bonds, CDOs

F.

Bonds, stocks, CDOs

Which of the following statements is correct in the context of the United States over the last 80 years?

A.

The growth rate of money (M2) and nominal interest rates are negatively correlated.

B.

The growth rate of money (M2) and nominal interest rates are positively correlated.

C.

The growth rate of money (M2) and nominal interest rates are completely uncorrelated.

D.

The growth rate of money (M2) and nominal interest rates are identical.