Borrowers: the demand for funds Flashcards
What is the most common form of borrowing by individuals?
Mortgages for households. Under a mortgage, the bank is given the house as security for the loan. If the borrower defaults, the bank gains the right to sell the house to regain debt.
What are other reasons that individuals will borrow?
Short-term purposes, car purchase, holidays, education, credit cards
Why do credit cards have relatively high interest rates?
Credit card loans are unsecured, and the bank cannot claim an asset in the case of default.
Why do businesses borrow?
To access funds to expand production, invest in research, or complete projects. Also, to start a business, or manage cash flow.
How do businesses borrow funds?
Businesses can issue shares to raise equity or debt by issuing bonds. They.may also borrow funds from banks.
Why do governments borrow?
To increase its spending and tax cuts to stimulate economic growth.
If spending grows faster than its revenue.
In order to fund infrastructure
Describe how infrastructure “pays for itself”
If a road, bridge or railway is likely to be used for several decades, then it is likely the returns from this asset will eventually exceed the cost of funding it.
