Exam (elaborations)
ECS3701 ASSIGNMENT 2 OF 2021
- Course
- ECS3701 - Monetary Economics
- Institution
- University Of South Africa (Unisa)
- Book
- Monetary Economics
Guranteed distinction
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
Content preview
ECS3701Assignment 2 Semester 1 & 2 2021
Unique #: 626172
QUESTION 1
Discuss how collateral and indirect finance are used in explaining the basic facts about financial
structure around the world.
Collateral is a prevalent feature of debt contracts for both households and businesses. Collateral is property that
is pledged to a lender to guarantee payment in the event that the borrower is unable to make debt payments.
Collateralized debt (also known as secured debt to contrast it with unsecured debt, such as credit card debt,
which is not collateralized) is the predominant form of household debt and is widely used in business borrowing
as well. The majority of household debt in South Africa consists of collateralized loans: Your automobile is
collateral for your auto loan, and your house is collateral for your mortgage. Commercial and farm mortgages,
for which property is pledged as collateral, make up one-quarter of borrowing by nonfinancial businesses;
corporate bonds and other bank loans also often involve pledges of collateral.
Indirect finance, which involves the activities of financial intermediaries, is many times more important than
direct finance, in which businesses raise funds directly from lenders in financial markets. Direct finance involves
the sale to households of marketable securities, such as stocks and bonds. The 43% share of stocks and bonds
as a source of external financing for American businesses actually greatly overstates the importance of direct
finance in our financial system. Since 1970, less than 5% of newly issued corporate bonds and commercial
paper and less than one-third of stocks have been sold directly to American households. The rest of these
securities have been bought primarily by financial intermediaries, such as insurance companies, pension funds,
and mutual funds. These figures indicate that direct finance is used in less than 10% of the external funding of
American business. Because in most countries marketable securities are an even less important source of
finance than in the United States, direct finance is also far less important than indirect finance in the rest of the
world.
QUESTION 2
Differentiate between the main factors in the initiation of financial crises between the advanced and
emerging market economies.
Financial crises in advanced economies can begin in several ways: mismanagement of financial liberalization/
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Ian09. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R100,00. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
79079 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now