Factors that affect the supply of funds_250112_170729

Factors that affect the supply and demand of funds :
-Total wealth.
-Risk of the financial security.-
- Future spending needs
-Monetary policy objectives.
- Foreign economic conditions.
 Wealth:
As the total wealth of financial market participants increases the absolute

dollar value available for investment purposes increases.
the supply of loanable funds increases, or the supply curve shifts down
and to the right.
the increase in the supply of funds due to an increase in the total wealth
of market participants
Results in a decrease in the interest rate,
Conversely, as the total wealth of financial market participants decreases

value available for investment purposes decreases. Accordingly, at every
interest rate the supply of loanable funds decreases, or the supply curve
shifts up and to the left
Results in: an increase in the interest rate.
 The risk :
As the risk of a financial security increases, it becomes less attractive to

supplier of funds. The supply curve shifts up and to the left. the decrease
in the supply of funds due to risk results in: an increase in the interest
rate, and a decrease quantity of funds traded..
Conversely, as the risk of a financial security decreases, it becomes more

attractive to supplier of funds. At every interest rate the supply of
loanable funds increases, or the supply curve shifts down and to the right.
Results in: a decrease in the interest rate, and an increase in the quantity
of funds traded.
 Near-term Spending Needs:
When financial market participants have few near-term spending

needs, the value of funds available to invest increases. the supply of
loanable funds increases, the supply curve shifts down and to the right.
Reacts to this decreasing in the interest rate.
Conversely, when financial market participants have near-term

spending needs, the value of funds available to invest decreases. At
every interest rate the supply of loanable funds decreases, or the
supply curve shifts up and to the left.
results in: an increase in the interest rate.
 Monetary Expansion:
One method used by the Federal Reserve to implement monetary policy.

When monetary policy objectives are to enhance growth in the economy,
the Federal Reserve increases the supply of funds available in the
financial markets. the supply curve shifts down and to the right, and the
interest rate falls.
Conversely, when monetary policy objectives are to contract economic

growth, the Federal Reserve decreases the supply of funds available in the
financial markets. the supply curve shifts up and to the left, and the
interest rate rises.
 Economic Conditions:
Finally, as economic conditions improve in a country relative to other

countries, the flow of funds to that country increases. The inflow of
foreign funds to U.S. financial markets increases the supply of loanable
funds at every interest rate and the supply curve shifts down and to the
right. Accordingly, the interest rate falls, and the quantity of funds
traded increases.
 Utility derived from assets
As utility from owning assets increases, funds suppliers are less
willing to invest and postpone consumption (Decrease) whereas
funds demanders are more willing to borrow (Increase).
Result: higher interest rates
 Restrictive covenants
As loan or bond covenants become more restrictive, borrowers
reduce their demand for funds.
Result: lower interest rates (demand).
 Tax Increase
Taxes on interest and capital gains reduce the returns to savers and
the incentive to save. The tax deductibility of interest paid on debt
increases borrowing demand.
Result: Higher interest rates for demand.
 Currency Appreciation
Foreign suppliers of funds would earn a higher rate of return if the
currency appreciates and a lower rate of return measured in their
own currency if the dollar depreciates (Increase) . Foreign central
banks often buy U.S. Treasury securities as part of their attempts to
prevent their currency from appreciating against the dollar.
Result: Lower interest rates
 Expected inflation
An increase in expected inflation implies that suppliers will be
repaid with dollars that will have less purchasing power than
originally anticipated . Suppliers lose purchasing power (Decrease)
and borrowers gain more than originally anticipated (Increase).
This implies that supply will be reduced and demand increased.
Result: Higher interest rates.

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Factors that affect the supply and demand of funds :

-Risk of the financial security.-

- Future spending needs

-Monetary policy objectives.

- Foreign economic conditions.

As the total wealth of financial market participants increases the absolute

Results in a decrease in the interest rate,

Conversely, as the total wealth of financial market participants decreases

Results in: an increase in the interest rate.

As the risk of a financial security increases, it becomes less attractive to

Conversely, as the risk of a financial security decreases, it becomes more

When financial market participants have few near-term spending

Reacts to this decreasing in the interest rate.

Conversely, when financial market participants have near-term

results in: an increase in the interest rate.

One method used by the Federal Reserve to implement monetary policy.

Conversely, when monetary policy objectives are to contract economic

Finally, as economic conditions improve in a country relative to other

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