finance_6-1

finance_6-1 - Finance Money and Banking Assignment 6-1...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Finance – Money and Banking Assignment 6-1 Jamie Hinson October 29, 2007
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
“The economic impact of monetary policy may depend on the willingness of banks to lend funds. Even if the Fed increases the level of bank funds during a weak economy, banks may be unwilling to extend credit to some potential borrowers, and the result is a credit crunch. It could be argued that if banks do not lend out the newly created funds, the economy will not be stimulated. Yet the perception that banks will not lend out sufficient funds is caused by the effects of a weak economy on loan repayment probability. Banks provide loans only after confirming that the borrower’s future cash flows will be adequate to make loan repayments. In a weak economy, the future cash flows of many potential borrowers are more uncertain, causing a reduction in loan applications (demand for loans) and in the number of qualified loan applicants. Banks and other lending institutions have a responsibility to their depositors, share-holders, and regulators to avoid loans that are likely to default. Because default risk rises during a weak
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 4

finance_6-1 - Finance Money and Banking Assignment 6-1...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online