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Stock Market Crashes of 1987 and 1989

What caused this drop in money market interest rates? Please elaborate fully.

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1. What caused this drop in money market interest rates? Please elaborate fully.

Leading to the crash, one of the corner stone intermarket relationships that economists use is the 2- year lag between the bond and commodity markets. In short, a rapid decline in interest rates today would tend to create an equally rapid increase in the major commodity indices two years from now. Interesting, the drop in interest rates that coincided with the collapse in energy prices at the end of 1985 helped create the commodity price rise through 1987 and 1988 that helped drive interest rates and stock prices into the stock market crash. In much the same way the bond market ...

Solution Summary

Referring to the stock market crashes of 1987, 1989 and shortly after, this solution elaborates fully on what caused this drop in money market interest rates. Supplemented with an informative article on the market crashes.

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