Interest Rates & Economic Factors Flashcards
7 cards from real CMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Interest Rates & Economic Factors flashcards as text
How does a decrease in the money supply typically affect mortgage interest rates?
Answer: Rates increase because lenders have less capital to deploy
A contracting money supply reduces available credit, forcing lenders to raise rates to ration the limited funds among competing borrowers.
What does a rising Mortgage Bankers Association (MBA) refinance index typically indicate?
Answer: Interest rates have recently declined, spurring refinance activity
The MBA refinance index surges when current mortgage rates drop below existing borrowers' rates, making refinancing financially attractive.
In a rising rate environment, which mortgage product carries the LEAST interest rate risk for the borrower?
Answer: 30-year fixed-rate mortgage
A 30-year fixed-rate mortgage locks in the rate for the entire loan term, completely insulating the borrower from future rate increases.
The Federal Open Market Committee (FOMC) meets approximately how many times per year to set monetary policy?
Answer: 8
The FOMC meets eight times per year (roughly every six weeks) to review economic conditions and set the federal funds rate target.
Which of the following would most likely cause the Fed to LOWER interest rates?
Answer: A recession with rising unemployment and slowing GDP
The Fed cuts rates to stimulate economic activity when growth slows and unemployment rises, as lower rates encourage borrowing and investment.
A borrower's ARM is tied to the SOFR index. What is SOFR?
Answer: Secured Overnight Financing Rate, based on Treasury repo transactions
SOFR (Secured Overnight Financing Rate) is based on actual overnight repurchase agreement transactions secured by US Treasury securities, replacing LIBOR.
How does strong job growth typically influence mortgage rates?
Answer: It raises rates by increasing inflation and Fed tightening expectations
Strong employment signals potential wage inflation and faster economic growth, prompting the Fed to tighten monetary policy, which pushes mortgage rates higher.