COMMERCE 2FA3 Study Guide - Final Guide: Loanable Funds, Interest Rate Risk, Initial Public Offering
19 Jan 2018
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Document Summary
Primary purpose of financial markets is the transfer of funds from those with an excess to those with insufficient. Transfer of funds from savers to units with productive opportunities (e. g. the exchanges between a person and a bank to buy a house) How to check if an investment is viable (example on pg. If a project is unable to make more than the amount of its interest rate (r ) then it should not go ahead. Important to account for opportunity cost (what you could lose/gain from investing/not investing) The price of resources today in terms of resources that must be repaid at some future date. Interest rate can be determined using the supply-demand analysis of microeconomics. Supply of loanable funds is positively related to interest rate. The greater the profit, the more likely people will offer investments to others. Demand for loanable funds is negatively related to interest rate.
