14
votes
Mortgage loans from foreign banks at lower interest rates
The low interest rate will be in a different currency. If your domestic currency falls in value, the value of the mortgage in terms of the domestic currency goes up.
Entities borrowing in a foreign ...
- 9,907
14
votes
Mortgage loans from foreign banks at lower interest rates
What does stop me from taking a loan from a bank in a rich EU-country to build or buy a house in a poor country like Russia, while having EU-level interest rates below 3% instead of the Russian 15%?
...
- 430
12
votes
Would insurance plan be necessary if we had instant access to credit?
As Dave Harris' points out in his comment, I assume that your question deals with events that do not compromise the individual's ability to work, which would prevent her from taking on debt.
Let's ...
- 3,242
11
votes
Would insurance plan be necessary if we had instant access to credit?
I think the best way to answer your question is with a simple example showing why insurance is so prevalent in the economy. Hopefully, it should then be clear that it can still make sense to purchase ...
- 291
10
votes
What are the causes of negative real interest rates?
If there is inflation, what is your alternative? If you do not lend, your money loses even more of its value.
A numerical example:
If inflation is 5% and you can lend at 2% nominal interest rate, you ...
- 29.5k
7
votes
What are the causes of negative real interest rates?
The same reason that oversupply leads to falling prices in any other market. There is a huge amount of money out there, and a lack of good returns with adequate levels of safety, so money is cheap.
...
- 558
6
votes
Accepted
Why did the stock of consumer loans held by commercial banks jump in March 2010?
Because of a change in regulation about how different accounts are to be recorded. That change was stated in the Financial Accounting Statements No. 166.
If you look into Notes on Data relating the "...
- 8,591
6
votes
Accepted
Loans that don't have to be paid back (only the interest)
Classic example are the British consol bonds. British consol bonds are perpetuities so that means the principal never has to be paid back (although government could repurchase them on an open market).
...
- 56.4k
5
votes
Mortgage loans from foreign banks at lower interest rates
I agree with @BrianRomanchuk's +1 answer but I would like to expand on it to give you some more intuition why that holds.
According to a simple monetary model of exchange rates, the exchange rate ...
- 56.4k
4
votes
Accepted
What is the Credit-to-GDP gap exactly?
The Credit-to-GDP, say ratio measures the relative size of the outstanding debt of non-financial private sector, say $D_{p,t}$ with respect to (yearly) Gross Domestic Product, say $Y_t$
$$\text{...
- 33.8k
4
votes
Accepted
Free Data Source for Credit Spreads?
Yes, there's daily data available on the St. Louis Fed's FRED.
- 6,374
4
votes
Would insurance plan be necessary if we had instant access to credit?
Insurance: pooled risk.
Loan: borrowing against future income.
With insurance, you may face higher premiums if you make a claim. But you won't pay anything against the claim itself. With a ...
- 1,182
4
votes
Would insurance plan be necessary if we had instant access to credit?
Not covered by the other answers: You have an accident in your car and it ploughs into a bus-stop severely injuring and permanently incapacitating several people. Not having insurance, you are ...
- 141
4
votes
Accepted
Was the aid in the Marshall Plan a loan?
The plan did involve loans but was mostly in the form of grants (gifts). As the Wikipedia entry states:
The Marshall Plan [...] consisted of aid both in the form of grants and in the form of loans. ...
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3
votes
Accepted
Does Chile have a government owned Export Import bank like the US or India?
Chile joined the OECD in 2010 but does not have an official export credit agency listed by the OECD in its involved in the Export Credit Group
The Inter-American Development Bank is lending US$27 ...
- 4,765
3
votes
Accepted
How can people save in a equilibrium economy?
The question is belied by some basic misconceptions. Just to list a few:
The comparison of GDP in nominal terms and implied statements about growth.
The definition/measurement of GDP (where saving is ...
- 2,619
2
votes
Would insurance plan be necessary if we had instant access to credit?
I think insurance and loan cover very different problems.
Insurance covers potential losses for a fee. You take insurance to mitigate risk. By accepting a relatively small loss, you do not need to ...
- 21
2
votes
Would insurance plan be necessary if we had instant access to credit?
Brythan comes close with his answer. The reason that you don't take out a loan is because the lender would have to take the risk on your future income. When the reason you are taking the loan is for ...
- 21
2
votes
Accepted
Why loans/debt can cause inflation?
Imagine an economy with only one good, tomatoes, and three people, Lender, Borrower, and Owner. Owner owns all tomatoes. Lender owns all the money. And Borrower owns nothing. If Lender doesn't lend ...
- 1,070
2
votes
Accepted
Why do loans drive the economy?
The lender is typically supplying loanable funds in the form of ‘savings’. I.e. money she wouldn’t spend until a future date. But the market for loanable funds allows one to earn interest on these ...
- 620
2
votes
Accepted
Why does the nominal interest rate equal 25% in this problem, instead of 16.4%?
Keep in mind that nominal interest rate=Profit/Initial Amount.
The exact relationship that links real interest rate, nominal interest rate and inflation is $(1+R_{nominal})=(1+R_{real})(1+\pi)$ where ...
2
votes
How can people save in a equilibrium economy?
You dont even have to have money or other people to make transactions with to save. In economics savings is a proportion of your output/income that is not consumed.
For example, you can have a ...
- 56.4k
2
votes
How can people save in a equilibrium economy?
At the national (macro) level in a closed economy, total savings must equal total investment. Total savings are total output - total consumption.
If there is no "savings technology" with a ...
- 6,148
2
votes
Mortgage loans from foreign banks at lower interest rates
The question is not restricted to mortgages. You're really asking about generic interest-rate arbitrage---borrow from the country with lower interest rate and lend (in your case, buy a house or become ...
- 2,619
2
votes
What is consumer debt and how could it make businesses vulnerable?
In the long run, consumers cannot spend more than they earn. In the short run they can spend more, increasing consumer debt, or they can spend less, decreasing consumer debt.
There is a limit to how ...
- 1,391
2
votes
Loans that don't have to be paid back (only the interest)
We were talking about such loans in one lecture, but in detail, we discussed interest-only mortgages. I have some notes on it and will write the info I have here; maybe, for someone, it will be ...
- 51
1
vote
How can people save in a equilibrium economy?
It may help to forget money for a moment and focus on real goods. What saving ultimately means is that by working harder now, people can gain more leisure in the future. If the only goods are ...
- 539
1
vote
Can a commercial bank lend money from transaction/checking account as it would from a deposit account?
Per fractional reserve system, banks lend deposited money as credit to clients provided they keep a reserve requirement.
This is a misleading statement. A bank loan creates a deposit, which can be ...
- 9,907
1
vote
Higher interest rates and default probabilities for longer loan term
There are two reasons why the interest rate is higher for the 60 months loans:
1- Liquidity premium
Like you said, since the money is immobilized for a longer period of time, it's normal to expect a ...
- 21
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