b. the effective loan yield will increase as a result of the decrease in the LIBOR and the bank would be able to offer more loans in the future. 2. a. The effective loan yield will increase as a result of 1% increase in the LIBOR and the value of the currency will also increase allowing the bank to offer more loans at attractive rates. b. The effective loan yield will decrease as a result of 0.75% decrease in the LIBOR and the value of the currency will also decrease which will force the bank to charge higher borrowing rates and may not be able to make loans in the
A high inflation will depreciate the domestic currency and an increase in inflation will increase the demand for foreign goods. It also decrease export, leading to balance of payment deficit. Hence, exchange rate on the foreign base countries currency will rise which appreciate the home base currency, (Madura, 2008). He also explained the relationship using the purchasing power parity. The theory of PPP states that a basket of a good in one country should have the same cost in another country, taking into account exchange
It focuses on the excess in demand. Cost pushed inflation is occurred when the raising in the price level of production costs (inputs), which could lead to reduction in the aggregate supply of outputs. It focuses on the decrease in supply. 2. Caused by: Demand pulled inflation is caused by monetary and real factors (the increase in money supply government spending and foreign exchange rates).
CHAPTER 2 LITERATURE REVIEW INFLATION (InvestorWords, 2015) stated that inflation is the increase in the general price level of goods and services in economy, normally caused by excess supply of money. Inflation usually measured by the Consumer Price Index (CPI). When the cost of producing goods and services goes up, the purchasing power of dollar will decrease. A customer will not be able to purchase the same goods and services as he/she previously could. Inflation rate of 1-2% per year are acceptable and even desirable in some ways (Investopedia, 2015).
As the interested customers will be willing to pay higher prices to purchase these goods. This theory is also part of Keynesian argument. The figure 2.0 shows what happens in demand pull inflation. So as the demand increases the prices also increases moving from AD1 to AD3. Figure 2.0 C. Effects of Inflation Firstly, due to inflation the value of money falls.
.3.3 Inflation Rate The inflation rate used as an indicator in measuring the stability of economic condition for a particular country (Rashid et al., 2011). In financial theory, inflation rate reflected by consumer price index (CPI) represents all the price of goods and services will go up and it need to take more money to buy the same items. Moreover, high inflation is likely cause a great impact on economic activities of a particular country because it reduces the purchasing power of domestic consumers and it would lead to currency value decline. The previous researchers believe that the inflation rate will influence the stock market return. There are many empirical studies establish that the inflation rate has an impact on stock market
Inflation: Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. GDP: Gross domestic product is the best way to measure a country's economy. GDP is the total value of everything produced by all the people and companies in the country. Dependent Variable Bank Performance: Bank performance may be defined as the reflection of the way in which the resources of a bank are used in a form which enables it to achieve its objectives. ROE: A measure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders.
Another argument refutes the claim that lower taxes for the rich encourage them to invest more which brings about economic growth. In the late 1920s and once again in the earlier part of the last decade, a lot of money was put into speculative investments than productive investments. Hence, increased government spending on improving the labour force and infrastructure through revenue generated from taxes can possibly be more effective than investments in driving economic growth. Now let us look at the other side of the coin – the negative impact of taxation. Taking into consideration other factors such as government spending, business cycle conditions and monetary policy, research has consistently pointed towards the fact that taxes have a significant negative effect on economic
If the volatility of the thirty-day market increases, the volatility of interest rates in the inter-bank money market also will increase. This is due to the volatility spill-overs from the thirty-day market is to the inter-bank market but not to the overnight market because OMOs increase the volatility of the thirty-day segment and inter-bank segment. Monetary policy and GOJ issue announcement have impact on the interest rates. In particular, OMO rate change, GOJ issue date, GOJ variable instrument and CRR. After analyze the result, we know that there is a lack of volatility spillover in the overnight market.
SME growth and domestic economic development has a direct relationship through increased output, value add and profits. The GDP contribution per SME is the difference between the return on capital and the cost of capital. Returns on capital are often high, with different datasets showing ranges up to 20-30% a month (for the most capital-strained firms), which is considerably higher than typical interest rates. The GDP contribution can be illustrated on a micro-level by looking at the additional economic activity generated by a hypothetical loan. This example gives a simplified view on how a SME owner who invested his loan into the purchase of imported goods increases consumption and GDP.