Question

indicste four groups of agents who are suppliers in the loanable funds market and explain why.

Answer 1

Loanable funds market refers to market in which money that supplier has saved to lend it out and buyer bought who is in need for money .

Major fours group who are supplier in loanable funds markets are as follows :

1) government - government usually lend out loan to earn good interest on their excess fund . If the government raised more funds than it expected it may lend out excess fund through financial market and earn good rate of interest . This also helps in generating employment , raising standard of living of people , development etc because the fund loaned is used in developing new business and infrastructure etc .

2) households : households are most common supplier of loan . Household saving during a year are invested in loanable funds market. Households do not spend whole amount of their income ,they always save a part of their income for use in future or difficult time. The fund saved is invested for short term or long term to earn good interest rate .

3) banks : Banks is major supplier to loanable funds market . Banks has all the savings and balances of its customers. All excess fund with bank is loaned out to firms who are in need of money . For this service bank charge interest rate and earn huge money . This is main earning of banks . Without lending bank cannot earn huge profit .

4) foreign investors - Foreign investors with high savings usually keep looking for good investment which can give them larger return . One source of getting larger return is lending funds to company who are in need of it . They become partners/shareholders in that company and enjoy profits as well as other benefits .