6. Answer all of the following: (a) As a first-year student, you need to borrow £40,000 in order to finance your university education. You intend to repay this loan over time after you graduate. Explain why seeking out an individual saver to borrow money from could be problematic. Then identify which service a bank provides to the economy that eliminates this problem. (b) Borrowing from the central bank or other banks is a short-term solution for a bank when it is illiquid. What do you think would be a more long-term solution if a bank is persistently illiquid? (c) Why is the short-term interest rate equal to the base rate?

6. Answer all of the following: (a) As a first-year student, you need to borrow £40,000 in order to finance your university education. You intend to repay this loan over time after you graduate. Explain why seeking out an individual saver to borrow money from could be problematic. Then identify which service a bank provides to the economy that eliminates this problem. (b) Borrowing from the central bank or other banks is a short-term solution for a bank when it is illiquid. What do you think would be a more long-term solution if a bank is persistently illiquid? (c) Why is the short-term interest rate equal to the base rate?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter19: The Macroeconomic Perspective

Section: Chapter Questions

Problem 30P: A mortgage 105m is a loan that a person makes to purchase a house. Table 19.11 provides a list of...

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A mortgage 105m is a loan that a person makes to purchase a house. Table 19.11 provides a list of the mortgage interest rate for several different years and the rate of inflation for each of those years. In which years would it have been better to be a person borrowing money from a bank to buy a home? In which years would it have been better to be a bank lending money?
Calculate the equity each of these people has in his or her home: Fred just bought a house for 200,000 by putting 10 as a down payment and borrowing the rest from the bank. Freda bought a house for 150,000 in cash, but if she were to sell it now, it would sell for 250,000. Frank bought a house for 100,000. He put 20 down and borrowed the rest from the bank. However, the value of the house has now increased to 160,000 and he has paid off 20,000 of the bank loan.
What are some ways that someone looking for a loan might reassure a bank that is faced with imperfect information about whether the borrower will repay the loan?
1. How does e-money helps in achieving financial inclusion of the BSP? 2. How does Financial Market Affect an MNC's Value? 3. Which do you prefer? the traditional way of transacting with banks and other financial institutions or with the use of e-banking? Explain why?
# 7 Which of the “savings glut” or “money glut” views do you think makes more sense? Which view do you think is right? Please discuss
17)What is a "subprime mortgage," and would a subprime borrower be likely to pay a higher or a lower interest rate than a borrower with a better credit history? Select one: a. Loans granted to borrowers with flawed credit histories; a higher interest rate. b. Loans granted to borrowers with the best credit histories; a lower interest rate. c. Loans granted to borrowers with flawed credit histories; a lower interest rate. d. Loans granted to borrowers with the best credit histories; a higher interest rate.
- Financial intermediaries act to reallocate (move) money from borrowers to savers. True False
1. Why is it so difficult to talk about money? 2. What is most helpful or vital to developing a workable budget?
8. Suppose the government borrow $20 billion more next year than this year. Use a supply-and demand diagram to analyze this policy . Does the interest rate rise or fall ? What happens to investment ? To private saving ? To public saving ? To national saving ? Compare the size of the changes to the $20 billion of extra government borrowing. How does the elasticity of supply of loanable funds affect the size of these changes ? How does the elasticity of demand for loanable funds affect the size of these changes? Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future . what does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the effects you discussed in part (a) and (b)?
1. What is the relationship between the time value of money and inflation? 2. Compare simple interest to compound interest. 3. What are the advantages and disadvantages of a fixed principal, fixed interest loan? 4. What is the purpose of a bridge loan? 5. Distinguish between bank discount and simple interest.6. Differentiate between a stated rate of interest and an effective rate of interest. 7. What is the significance of finding the internal rate of return (IRR)? 8. Jill Kramer borrowed $25,000 to pay for a startup business. Jill must repay the loan at the end of five months in one payment with a 6 percent simple interest rate.What is the total amount that Jill must repay in five months?How much interest does Jill repay?9. Joe Jones went to his bank to find out how long it will take for $1,000 to amount to $1,350 at 9 percent simple interest. Solve Joe's problem.