5.2 - financial sector

Question 1

Why is the FS important for developing nations?

Answer 1

Support trade - boost export growth + grants access to imports
Allows savings to be accumulated + used as investment funds to allow lending - higher I

Question 2

Harrod Domar Model states econ development is dependent on

Answer 2

Level of savings
Capital output ratio

Question 3

Higher savings =

Answer 3

Higher investment =
More capital stock accumulation =
Boosts economy =
Economic growth

Question 4

Domar equation

Answer 4

y = s / k
y = economic growth
s = savings ratio
k = capital output ratio

Question 5

Savings gap

Answer 5

low levels of savings prevents economic growth

Question 6

Exogenous factors decreasing savings gap

Answer 6

FDI
Remittances
Borrowing from foreign banks

Question 7

Endogenous factors decreasing the savings gap

Answer 7

Tax incentives
Funding
Increasing supply of skilled workers
Gov subsidies

Question 8

Microfinance

Answer 8

Supply of financial services to the poor:
Credit
Savings
Insurance
Investment for small firms
Expensive
Open to abuse - collection of payments

Question 9

Strength of financial sector

Answer 9

Helps developing nations emerge

Question 10

Weaknesses of FS

Answer 10

Capital flight - recessions means firms pull out of funding
Poorest / unstable economies = less funding
High debt levels