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Chapter 10: Q2. (page 385)

What tasks of a financial system does microlending perform?

Short Answer

Expert verified

Micro-lending is performing the task of reducing financial risk.

Step by step solution

01

Microlending

Reducing financial risk is one of the tasks of the financial system. A regular bank will avoid providing loans to these households to averse the financial risk.

Grameen Bank is doing so by lending them small loans by distributing the financial responsibility with the other member of the group. In this way, the bank reduces the financial risk associated with them

02

Grameen Bank

Grameen Bank lends small loans to small-income households. It approves the loan a collective responsibility method under which every borrower is a part of a 5-member group. If one of them requires a loan, this group is responsible for approving. If the member fails to repay the loan amount, each member of the group will take the responsibility of repaying it.

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Most popular questions from this chapter

Explain what is wrong with the following statement: “Savings and investment spending may not be equal in the economy as a whole because when the interest rate rises, households will want to save more money than businesses will want to invest.”

What is the likely effect of each of the following events on the stock price of a company? Explain your answers.

  1. The company announces that although profits are low this year, it has discovered a new line of business that will generate high profits next year.
  2. The company announces that although it had high profits this year, those profits will be less than had been previously announced.
  3. Other companies in the same industry announce that sales are unexpectedly slow this year.
  4. The company announces that it is on track to meet its previously forecast profit target.

Rank the following assets in terms of (i) level of transaction costs, (ii) level of risk, (iii) level of liquidity.

a. A bank deposit with a guaranteed interest rate

b. A share of a highly diversified mutual fund, which can be quickly sold

c. A share of the family business, which can be sold only if you find a buyer and all other family members agree to the sale

Use a diagram of the loanable funds market to illustrate the effect of the following events on the equilibrium interest rate and investment spending. a. An economy is opened to international movements of capital, and a net capital inflow occurs.

b. Retired people generally save less than working people at any interest rate. The proportion of retired people in the population goes up.

Assess the following statement: "Although many investors may be irrational, it is unlikely that over time they will behave irrationally in exactly the same way—such as always buying stocks the day after the Dow has risen by 1%."
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