scroll to top
Stuck on your essay?
Get ideas from this essay and see how your work stacks up
Word Count: 557
Introduction In financial systems lenders play a very important part in the flow of funds Lenders or savers as they are commonly called can lend their funds in the form of direct finance or indirect finance Their funds are transported to the borrowers To properly understand this we must look at diagram A a diagram of the circular flow of funds in a financial system on the diagram page According to the circular flow diagram the main savers and source of savings in the economy are households Households may spend less than what they earn and will save some of what they earn for future compensation Other major lenders are business enterprises which make profits and governments that achieve surplus budget outcomes The supply of savings for borrowers can also be supplemented by borrowing from overseas financial systems these include New York Tokyo London Zurich Singapore and Hong Kong Banks and financial intermediaries from overseas lend funds to Australian Borrowers Households businesses governments and international can lend money to financial intermediaries as an indirect finance in the form of savings To attract funds intermediaries offer the lenders interest this way they charge a high rate to the borrowers Financial intermediaries include banks and NBFIs or non-banking financial institutions The biggest bank is the reserve bank NBFIs include things such as credit unions The reserve bank will lend money to banks and authorised money dealers Returns The rate of interest earned is very important to lenders it is necessary to distinguish between the nominal interest rate and the real interest rate The nominal rate of interest is the rate advertised by the intermediary to attract borrowers and lenders Eg Nominal Interest Rate dollars of interest paidoriginal deposit x 1001 For example a lender deposits 400 with a bank for one year and receives interest payments of 40 In this situation the nominal rate of
@Kibin is a lifesaver for my essay right now!!
- Sandra Slivka, student @ UC Berkeley
Wow, this is the best essay help I've ever received!
- Camvu Pham, student @ U of M
If I'd known about @Kibin in college, I would have gotten much more sleep
- Jen Soust, alumni @ UCLA