Demand for funds Assignment Help

Assignment Help: >> Equilibrium in financial markets - Demand for funds

The demand for funds:

The demand for funds depends upon: (1) investment in fixed and working capital, (2) demand for consumer durables, and (3) investment in housing.  The total investment demand, in turn, is determined by (i) the current level of capital stock, (ii) capacity utilisation, (ii) the desired capital stock, which is influenced by business expectations regarding future demand for goods, prices, government policies, and profitability, (iv) availability of internal funds, (v) cost of funds, and (vi) technological changes.
The demand for consumer durables depends upon: (i) changes in tastes and preferences, (ii) fashion, (iii) demonstration effect, and (iv) cost of funds

In practice, the financial markets are characterised by many imperfections, restrictive practices, and externalities.  Consequently, the financial markets tend to experience either the es demand or excess supply of funds.  Therefore, the interest rate differs, often quite substantially, from the rate of interest determined theoretically under ideal conditions. 

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