Which fluctuate more-long-term or short-term interest rates?

1st response
6-3 Suppose you believe that the economy is just entering a recession. Your firm must raise capital immediately, and debt will be used. Should you borrow on a long-term or a short-term basis? Why?

Given the situation, I believe that the correct decision would be to borrow on a short-term basis. I believe that it would be smart to borrow on a short-term basis because interest rates will likely go down once the economy is fully in recession. Once the economy is in recession then the interest rates will be much lower than before and it would be a good decision to refinance the loan. So this means that you will have the higher interest rate before the economy enters the recession and then once you refinance you will have a lot lower of an interest rate.

Reference:

Brigham E. F., & Houston J. F. (2015). Fundamentals of Financial Management. [MBS Direct]. Retrieved from https://mbsdirect.vitalsource.com/#/books/9781305480742/

2nd response
Chapter 6: Question 6-2

Which fluctuate more-long-term or short-term interest rates? Why?

The short-term interest rate will fluctuate more than ling-term interest rates. These short-term rates rise and fall quicker than the long-term interest rates. Usually when this happened it is due to a business boom that happens all the sudden. When you hit a recession, they will also fall which we all seen as the house market interest rates dropped to the lowest, they have been when the Covid hit. This is how we got such a good interest rate on our home when the market hit, we were building a house and we happen to get our construction loan interest rate at 2.5%. Our friends are starting to build, and they already said that the interest rates went up and they are not coming back down anytime soon. That is how quickly the short-term rates can fluctuate. The house market is booming which helps the demand for credit to go down, which helps the economy to give more money and have more funds on hand so that the rates will continue to go down instead of going up.

Works Cited

Brigham, E. F., & Houston, J. F. (2016). Fundamentals of financial management (14th ed.). Cengage Learning.

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