Borrowing and lending

Borrowing and lending - the rate of interest If the number...

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Borrowing and lending Borrowing and lending are capital transactions. Savings or bank credits are supplied as loanable funds. Borrowers pay the extra charges of interest or discount for the use of loanable funds. Therefore the rate of interest is the price of borrowing loanable funds. Matters like the interest rate being positive, or then how high (or low) an interest should be charged are determined in the same manner like other commodity price. It is the supply of savings and the demand for loanable funds which together determine
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Unformatted text preview: the rate of interest. If the number of savers and their amount of saving exceeds the needs of the borrowers then the rate of interest will be relatively low. But if the loanable funds supplied are smaller in size than the needs of the borrowers the rate of interest will be relatively higher. Demand for funds borrowed increases with every fall in the rate of interest. Therefore supply of savings or loanable funds is an upward sloping curve....
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This note was uploaded on 11/26/2011 for the course EC ec 201 taught by Professor - during the Fall '10 term at Montgomery.

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