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Chapter One
Chapter One

... Students can readily grasp that there is very little profit risk from an interest rate change on the $34 of NEA financed by equity. Likewise there is little profit risk from the $206 FRAs financed by FRLs because the cash inflows and outflows on these accounts do not change over the given maturity b ...
Links Between the Domestic and Eurobond
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RTF 49.1 KB - Productivity Commission
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... 2. Not quickly made or easily reversed. Decisions on discount lending proposed by Federal Reserve banks, then approved by Board of Governors. In principle, each bank sets its own rate, in practice they rarely diverge for more than 1 or 2 days. 3. Creates moral hazard problem, as banks expect to be s ...
IV - LSE
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... often been unable to obtain financing due to the prior caps on interest rates. Lenders who were willing to provide credit to lower quality borrowers were thus able to “price” their loans with higher interest rates to compensate them from the higher delinquency and loss levels that they expected from ...
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Collateralized Debt Obligations – an overview
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... the CDO. Investors can assess the various tranches of the CDO with full knowledge of what the collateral will be (or variation thereof). The primary risk they face is credit risk. On the other hand, with a managed CDO, a portfolio manager is appointed to “actively” manage the underlying collateral ...
CGAP
CGAP

... Simple Method: For a rough approximation of the “shadow” price of funds, multiply financial assets5 by the higher of (a) the effective rate which local banks charge medium-quality commercial borrowers, or (b) the inflation rate which is projected for the planning period by some credible (usually, th ...
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Credit rationing



Credit rationing refers to the situation where lenders limit the supply of additional credit to borrowers who demand funds, even if the latter are willing to pay higher interest rates. It is an example of market imperfection, or market failure, as the price mechanism fails to bring about equilibrium in the market. It should not be confused with cases where credit is simply ""too expensive"" for some borrowers, that is, situations where the interest rate is deemed too high. On the contrary, the borrower would like to acquire the funds at the current rates, and the imperfection refers to the absence of equilibrium in spite of willing borrowers. In other words, at the prevailing market interest rate, demand exceeds supply, but lenders are not willing to either loan more funds, or raise the interest rate charged, as they are already maximising profits.
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