There is a fundamental distinction between nominal and real interest rates. Nominal interest rates are interest rates as we ordinarily observe them, for example, as they are reported in the Wall Street Journal. Thus all the money market rates we discussed earlier in this series of posts and the STRIPS yields we discussed just above [...]

The Federal Home Loan Mortgage Corporation (FHLMC), commonly called “Freddie Mac,” and the Federal National Mortgage Association (FNMA), commonly called “Fannie Mae,” are government-sponsored agencies that purchase large blocks of home mortgages and combine them into mortgage pools, where each pool may represent several tens of millions of dollars of home mortgages. The interest rates [...]

A banker’s acceptance is essentially a postdated check upon which a commercial bank has guaranteed payment. Banker’s acceptances are normally used to finance international trade transactions. For example, as an importer you wish to purchase computer components from a company in Singapore and to pay for the goods three months after delivery, so you write [...]