COMMERCE 2FA3 Chapter 1: Chapter 1
29 Jan 2017
School
Department
Course
Professor
Document Summary
The primary purpose of financial markets is the transfer of funds from those with excess to those insufficient. Deficit units: those with insufficient funds (cid:3048)(cid:3047)(cid:3042) 1> (cid:3041)(cid:3042) For a project to be economically viable, the above condition must hold true. An interest rate is a price: it is the price of resources today in terms of resources that must be repaid at some future date. Supply of loanable funds (s): is logically positively related to the rate of interest. Demand for loanable funds (d): is negatively related to the rate of interest. The intersection of the above curves is labelled req: the equilibrium interest rate and lfeq the amount of loanable funds transferred from surplus units. Interest rates are higher when the demand for a good or service is higher. Nominal interest rates are always different from real interest rates.
