Lenders: the supply of funds

Question 1

When do individuals, firms and governments participate in financial markets as lenders?

Answer 1

When they are seeking a return on their wealth

Question 2

What are the main options for individuals seeking returns on wealth?

Answer 2

They may deposit with a financial institution, invest in assets (eg, residential property), buy shares

Question 3

Why would a firm become a lender in a financial market?

Answer 3

They may have good cash flow and profits, but not have immediate plans for expansion. They may deposit funds in a financial institution.

Question 4

When is a firm more likely to deposit funds for returns?

Answer 4

If interest rates are at a level where it is more lucrative to lend funds rather than expand the business.

Question 5

When does the government become a lender?

Answer 5

When it runs a budget surplus, with revenue exceeding spending. This allows it to pay off debt, or loan money in the financial sector.

Question 6

What is a fourth source of loaned funds in the financial market?

Answer 6

The international sector

Question 7

What occurs when Australians borrow funds from overseas?

Answer 7

it is recorded as a foreign liability and must be repaid.