Financial Sector

• What are financial liquid assets exchanged in?

  Financial markets
• How do financial markets facilitate saving?

  They provide a place to store funds
• What do consumers receive for their savings in banks?

  Interest payments
• What is the role of financial markets in lending?

  They aid the transfer of funds between agents
• How do financial markets facilitate the exchange of goods and services?

  By enabling interaction between buyers and sellers
• What is the currency market used for?

  Trading one currency for another
• What can affect the value of a currency in the currency market?

  Speculative attacks
• What do investors trade in commodity markets?

  Primary products like wheat and gold
• What is a future contract in commodity markets?

  Agreement for future delivery at a set price
• What is a forward market?

  An informal market for future delivery contracts
• Why is a secure financial sector important for economic development?

  It helps generate sufficient savings
• What is a principal cause of poverty in developing countries?

  High levels of debt
• How does high debt affect financial resources in developing countries?

  It diverts funds from essential services
• What is debt relief?

  Partial or total forgiveness of debt
• What can debt forgiveness improve in a country?

  Government finances and public services
• What is a potential downside of debt forgiveness?

  It may encourage future borrowing
• What is the saving rate in Africa compared to middle-income countries?

  Africa's saving rate is around 17%
• What does the Harrod-Domar model state is required for economic growth?

  Investment, saving, and technological change
• How is the rate of growth calculated in the Harrod-Domar model?

  By savings ratio / capital output ratio
• What are some limitations of the Harrod-Domar model?

  Low saving propensity and poor financial systems
• What is the paradox of thrift?

  Increased savings can reduce aggregate demand
• What does microfinance involve?

  Borrowing small amounts to finance enterprises
• How does microfinance benefit borrowers?

  Increases incomes and reduces dependency
• What is a potential outcome of microfinance loans?

  A multiplier effect from loan investment
• What percentage of microfinance cohorts in Bangladesh are women?

  95%
• What do microfinance loans help borrowers avoid?

  High interest, exploitative loan sharks
• What is a concern regarding the data collected on microfinance loans?

  Dishonesty about money spent
• What percentage of microenterprises in Tamil Nadu were still operating?

  Less than 2%
• What is a characteristic of microfinance loans?

  They have high repayment rates
• What are the roles of the financial sector in promoting economic development?

  • Facilitates saving for investment
  • Enables control and management of the economy
  • Helps firms raise capital through markets
  • Facilitates borrowing for business expansion
  • Governments raise funds through bonds or bills
• What are the impacts of public and private sector debt on developing economies?

  • Threatens poverty and inequality
  • Diverts resources from essential services
  • High debt hampers development
  • Debt forgiveness can improve living standards
  • Risks of encouraging future borrowing and corruption
• What are the consequences of a foreign currency gap and capital flight?

  • Foreign currency gap: insufficient capital inflows
  • Capital flight: money leaving due to economic threats
  • Can worsen economic crises and currency depreciation