TAILIEUCHUNG - Basics of Interest Rates, The Richard D.C. Trainer

The question is whether this is also true for loans to small- and medium-sized enterprises (SMEs). Proponents of public banks argue that only savings banks can guarantee the pro- vision of loans to SMEs. Therefore, the Italian reforms may have impaired the availability of SME loans. Furthermore, the reforms led to a consolidation wave, reducing the number of banks from 1,088 in 1992 to 788 in 2003, and raising the average bank size from 1,014 million Euros in 1992 to 2,754 in 2003 (Engerer and Schrooten 2004, Körnert and Nolte 2005, OECD 2002). Larger banks may be less able to extend loans to small customers be- cause. | Basics of Interest Rates The Richard . Trainer Grade Levels 8 9 10 11 12 Document Type Supplementary Materials Description Provides an elementary discussion on interest rates and their effect on production employment income and prices. This document may be printed. Main Menu Document INTRODUCTION Interest rates aren t what they used to be rates a year or even a month ago are different from those prevailing today in our financial markets. That s because interest rates flex with the ebb and flow of general economic activity. Interest rates also change in response to the expectations borrowers and lenders have about the future level of prices. Changes in the dollar s value on foreign exchange markets or in interest rates abroad and of course the closely watched monetary policy actions taken by the Federal Reserve all have a pronounced impact on the level of . interest rates. There are indeed a host of factors that feed into determining the general level of interest rates. Interest rates play an important role in our market economy. As signals direct the flow of a city s traffic through a complicated grid of intersecting streets and avenues interest rates channel the flow of funds from savers to borrowers. Usually the funds flow through financial intermediaries such as banks mutual funds and insurance companies. A balance is struck between the demand for funds by borrowers and the supply of funds from savers by an ever-adjusting level of interest rates. Changes in the quantity of funds available to finance the spending plans of borrowers as well as changes in borrowers demands for funds alter interest rates which in turn affect the levels of consumer and business spending income the Gross National Product the employment of resources and the level of prices. Clearly interest rates have a tremendous effect on our economy. This booklet is not intended to be a primer on interest rate forecasting. Nor does it reveal magic formulas for achieving the right level of .

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