ECS3701 Assignment 2 (COMPLETE ANSWERS) Semester 2 2024 (833935) - DUE 27 September 2024
ECS3701 Assignment 2 (COMPLETE ANSWERS) Semester 2 2024 (833935) - DUE 27 September 2024
ECS3701 Assignment 2 (COMPLETE ANSWERS) Semester 2 2024 (833935) - DUE 27 September 2024
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Monetary Economics
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, ECS3701 Assignment 2 (COMPLETE ANSWERS) Semester
2 2024 (833935) - DUE 27 September 2024 ; 100%
TRUSTED Complete, trusted solutions and explanations.
2.01 Discuss how collateral and indirect finance are used in
explaining the basic facts about financial structure around the
world. [10] 2.02 The two ways in which government can finance
its deficit is through monetizing the debt and printing money.
Explain each of these two ways in detail and what happens to
monetary base and money supply. [15]
2.01 Collateral and Indirect Finance in Explaining Financial
Structure Worldwide
Collateral and indirect finance play significant roles in
understanding the structure of financial markets globally.
1. Collateral: This refers to assets pledged by a borrower to
secure a loan. Collateral reduces the risk to lenders,
ensuring that if the borrower defaults, the lender has a
claim on the asset. The use of collateral is widespread
because it mitigates asymmetric information problems,
particularly adverse selection (where borrowers have more
information about their risk profile than lenders).
o Global Context: In both developed and developing
economies, collateral serves as a key mechanism that
makes credit more accessible. For instance, mortgages
(backed by property) or secured business loans
(backed by assets) are common ways collateral is
used.
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