Community Web Version Now Available
Mark
Why capped at a lower end The book talk about the credit rationing from the bank(the lender) perspective. 「In the case of credit rationing, default risk is a plausible explanation: raising interest rates above a certain threshold would lead the borrower to gamble on increasingly risky projects, since the losses are capped at the lower end. Thanks to limited liability, the borrower might not be forced to turn over to his creditors an amount greater than his marketable assets. The resulting model might be presented as a deduction from first principles. That, after all, is the accepted view of economists’ scientific method. But in fact, the thinking that produced the model involved a large element of induction.」 From the first sentence: Why the bank raising the interest rate, the borrower lost are capped at the lower end" I do think the higher interest rates, the more borrower need to pay, why would be lower?
Jan 30, 2016 2:40 PM
2
0
Answers · 2
Raising interest rates above a certain threshold would lead the borrower to gamble on increasingly risky projects> There is no logic to this statement . The higher the interest rate , the higher the cost of borrowing; the less the borrowers , leading to less investments ( shares or otherwise). A country will increase the interest rate to curb spending so as to control inflation or stop the supply of "cheap" money going into the stock or property markets . So, the opposite of your statement make more sense. In the financial world , your losses are never capped . Its your ability to invest more than you should is capped by your credit standing.
January 30, 2016
I do not think that the answer to your question is in the text. It's not really a question for language teachers because other knowledge is required. I recommend that you ask a specialist in economics.
January 30, 2016
Mark
Language Skills
Chinese (Mandarin), English
Learning Language
English