Business & Finance homework help| Business & Finance homework help
BEIt, the Bloomberg Eurodollar Swap Interest Rate Rate, is not zero-based because of various factors like market liquidity. Credit risk, counterparty risks, and legal uncertainty are all important. Market liquidity describes how easy it is to buy or sell a particular security, which in turn affects what investors will pay. Credit risk refers to the possibility of a default in a financial asset, while counterparty is the risk that if one party does not perform its obligation under an arrangement. Lastly, there is legal uncertainty which can arise from changes in laws and regulations.
The most likely factor impeding the FOMC’s ability to determine a reasonable gauge of inflation expectations when formulating its monetary policy strategy would be market liquidity. The reason is that fluctuations in the market can cause increased price volatility, making it hard for policymakers accurately to gauge inflation trends. Credit and counterparty risk could have an effect as well, since both of these factors pose potential risks that could distort inflation readings when not properly accounted for.