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Problem 1 a) What is a Financial Market? Distinguish between money and capital markets? b) What is the role of depository institutions in an economy?

Problem 1

a) What is a Financial Market? Distinguish between money and capital markets?

b) What is the role of depository institutions in an economy?

c) What is the difference between the expected real interest rate and the nominal interest rate actually earned? Calculate the nominal interest rate on a 10year Target bond with a yield to maturity of 3.2% if the long-term inflation rate is 3.3%.

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