Coping in a High Interest Rate Environment

1982 ◽  
Vol 2 (1) ◽  
pp. 9-18 ◽  
Author(s):  
Arthur E. Schloss
Keyword(s):  
Interest Rate ◽  
High Interest Rate ◽  
High Interest ◽  
Rate Environment

The Competitive Advantage of Moneylenders Over Banks in Rural Palestine

2005 ◽  
Vol 48 (1) ◽  
pp. 1-39 ◽  
Author(s):  
Amos Nadan
Keyword(s):  
Interest Rate ◽  
Rural Areas ◽  
Bank Loans ◽  
British Government ◽  
Good Information ◽  
High Interest Rate ◽  
High Interest ◽  
Strategic Default ◽  
Rate Environment ◽  
The Government

AbstractAccording to the British Government in Mandate Palestine, the tendency of the fallahin (Arab peasants) to "strategic default" and the monopolistic power of local moneylenders led to high interest lending in rural areas. The government sought to remedy this by assisting banks in collecting bad debts, by guaranteeing some bank loans and by imposing the maximum legal interest rate. However, the colonial perception was incorrect. Defaults were usually "involuntary" as a result of natural and occasionally man-made hazards (thus creating a high interest rate environment), and the moneylending market was "contestable." In such an environment, despite government assistance, moneylenders had a comparative advantage over banks. They were usually merchants who could easily utilise collateral on loans (crops and lands); they ignored the law of maximum interest rate and they had good information about borrowers. For these reasons moneylenders remained the main source of credit for the fallahin. D'après le gouvernment britannique dans la Palestine sous mandat, la propension des fallahin (les paysans arabes) à se trouver en « défaut de paiement stratégique » et le monopole des prêteurs locaux expliquent les prêts à intérêts élevés dans les régions rurales. Le gouvernent essaya de pallier cette situation en aidant les banques à reprendre les créances irrécouvrables, en garantissant quelques prêts bancaires et en imposant un taux d'intérêt maximum légal. Cette interprétation coloniale était cependant erronée. Les défauts de paiement étaient en général « involontaires » , le résultat d'aléas d'ordre naturel ou parfois humain (créant un taux d'intérêt élevé) et le marché du prêt était « contestable ». Dans ces circonstances, et malgré l'aide gouvernementale, les prêteurs avaient un avantage par rapport aux banques. Il s'agissait en général de marchands qui pouvaient facilement faire usage des nantissements garantissant les prêts (récoltes ou terrains); ils ne tenaient pas compte de la loi de taux d'intérêt maximum et ils étaient bien informés sur les emprunteurs. Tous ces faits expliquent pourquoi les prêteurs demeuraient, pour les fallahin, la principale source de crédit.

How Do Homeowners Choose Between Fixed and Adjustable Rate Mortgages?

2016 ◽  
Vol 06 (04) ◽  
pp. 1650013 ◽  
Author(s):  
Yevgeny Mugerman ◽  
Moran Ofir ◽  
Zvi Wiener
Keyword(s):  
Interest Rate ◽  
Housing Prices ◽  
Optimal Choice ◽  
Housing Finance ◽  
Short Term ◽  
Fixed Rate ◽  
High Interest Rate ◽  
Theoretical Literature ◽  
Rate Environment ◽  
Adjustable Rate

Housing is the most important asset in the portfolio of most households. Understanding the households’ decision on housing finance has important implications from a policy perspective, due to the effects it may have on the housing prices, on the housing market stability and on household welfare. The theoretical literature on housing finance focused on figuring out the optimal choice between fixed rate mortgages (FRMs) and adjustable rate mortgages (ARMs). We argue that the standard economic criteria are sometimes inadequate to explain household’s choices, which may be motivated by psychological factors. In other words, we claim that household’s choice depends only partially on the findings of the theoretical literature. We examine the effect of changes in the short-term market interest rate on the households’ choice between FRMs and ARMs. We test this effect using a unique data provided to us by the Bank of Israel, which contains detailed information on the household’s decision between FRM and ARM contracts in Israel in the past decade. The results of our analysis demonstrate a significant association between FRM preference and short-term interest rate reduction. Moreover, we find that the change in the short-term interest rate is more salient to the borrowers in periods of a high interest rate environment. We attribute these findings to Tversky and Kahneman (1974) availability and representativeness heuristics.

THE EFFICIENCY-STABILITY TRADE-OFF: THE CASE OF HIGH INTEREST RATE SPREADS IN VENEZUELA

2007 ◽  
Vol 45 (1) ◽  
pp. 1-26 ◽  
Author(s):  
Leonardo VERA ◽  
Luis ZAMBRANO-SEQUÍN ◽  
Andreas FAUST
Keyword(s):  
Interest Rate ◽  
High Interest Rate ◽  
Trade Off ◽  
High Interest ◽  
Interest Rate Spreads

Nigeria’s 2020 budget plans could prove impossible

2019 ◽  
Keyword(s):  
Interest Rate ◽  
World Bank ◽  
Growth Potential ◽  
High Interest Rate ◽  
Content Type ◽  
National Assembly ◽  
Doing Business ◽  
Deficit Financing ◽  
Rate Environment ◽  
Ease Of Doing Business

Subject Nigeria's 2020 budget. Significance President Muhammadu Buhari on October 8 proposed a 10.3-trillion-naira (28.4-billion-dollar) budget for 2020. The budget plans to increase spending on much-needed infrastructure, while deficit financing trends also look set to continue with a proposed 2.18-trillion-naira deficit. However, the proposed budget is plagued by the same challenges that have crippled previous Buhari plans, namely overly optimistic revenue expectations. Impacts A curtailing of infrastructure spending, combined with the high interest rate environment, will likely limit the economy's growth potential. Increased compliance costs could hurt an already diminished investment reputation and future World Bank ‘ease of doing business’ rankings. An easier relationship between the presidency and the national assembly should see the budget passed without the major delays of past years.

scholarly journals Infrequent Portfolio Decisions: A Solution to the Forward Discount Puzzle

2010 ◽  
Vol 100 (3) ◽  
pp. 870-904 ◽  
Author(s):  
Philippe Bacchetta ◽  
Eric van Wincoop
Keyword(s):  
Interest Rate ◽  
International Finance ◽  
Foreign Currency ◽  
Welfare Gain ◽  
High Interest Rate ◽  
Portfolio Decisions ◽  
High Interest ◽  
Currency Management ◽  
Forward Discount

A major puzzle in international finance is that high interest rate currencies tend to appreciate (forward discount puzzle). Motivated by the fact that only a small fraction of foreign currency holdings is actively managed, we calibrate a two-country model in which agents make infrequent portfolio decisions. We show that the model can account for the forward discount puzzle. It can also account for several related empirical phenomena, including that of “delayed overshooting.” We also show that making infrequent portfolio decisions is optimal as the welfare gain from active currency management is smaller than the corresponding fees. (JEL F31, G11, G15)

What Would Have Happened in Indonesia if Different Economic Policies Had Been Implemented When the Crisis Started?

2002 ◽  
Vol 1 (2) ◽  
pp. 75-103 ◽  
Author(s):  
Iwan J. Azis
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Income Distribution ◽  
High Interest Rate ◽  
Interest Rate Policy ◽  
Net Worth ◽  
High Interest ◽  
Lower Interest Rate ◽  
Rate Policy ◽  
Business Confidence

Many models of the Indonesian economy cannot generate the large collapses in output and exchange rate experienced in 1997–98. The model in this paper was able to replicate the actual events by adding several new links. One new link is between the depreciation of the exchange rate and the deterioration of the balance sheets of firms, which are in turn linked to decline in investment. Another new link is between decline in output and decline in business confidence, leading to possible increased capital outflow and exchange rate collapse. The IMF's high interest rate policy did not succeed in strengthening the rupiah because it inflicted such severe damage on the net worth of Indonesian firms that it caused capital flight to accelerate, turning what was originally just a financial crisis into a major recession. Two alternative counterfactual policy packages are examined: (1) a lower interest rate policy and (2) a lower interest rate policy combined with a partial write-down of the external debt. The model indicates that the country's macroeconomic conditions would have fared better if the prolonged high interest rate policy had been avoided. The results suggest that early actions should have been undertaken to address the mounting private foreign debts. The delayed handling of private debts had prevented other policies from working effectively. The two counterfactual policies also would have resulted in a more favorable outcome for income distribution and poverty incidence. The model revealed a close correlation between worsening (improving) income distribution and increasing (declining) interest rates.

scholarly journals Analysis of Smallholder Farmers Repayment of Bank of Agriculture Loan in Ezza South Local Government Area of Ebonyi State, Nigeria (2009-2018)

2021 ◽  
Vol 8 (4) ◽  
pp. 198-208
Author(s):  
Mbam B. N ◽  
Nwibo S. U ◽  
Nwofoke C ◽  
Egwu P. N ◽  
Odoh N.E
Keyword(s):  
Interest Rate ◽  
Local Government ◽  
Smallholder Farmers ◽  
Primary Source ◽  
Sampling Technique ◽  
Payback Period ◽  
Local Government Area ◽  
High Rate ◽  
High Interest Rate ◽  
High Interest

Smallholder farmer’s repayment of Bank of Agriculture (BOA) loan in Ezza South Local Government Area of Ebonyi State was studied using 120 smallholder farmer beneficiaries selected using multistage sampling technique. Data were collected from primary source only using structured questionnaire and analyzed using both descriptive and inferential statistics. Results showed default of 32.3% as out of N333, 997,620.50 were disbursed to the farmers a total of N226, 080,887.00 were repaid. However, the socioeconomic characteristics of the loan beneficiaries contributed about 75 % (R2 = 0.754) significant influence on repayment of Bank of Agriculture loan. Meanwhile, high interest rate, excessive bureaucracy, high rate of illiteracy, late approval of loan, lack of collateral, short payback period, and low farm output were identified as the major constraints to the repayment of BOA loan. It is recommended that as a measure to promote efficient and timely repayment of BOA loans by the farmers, management of BOA should address the institutional factors such as high interest rate, excessive bureaucracy and late approval of loan, high-value collateral and short payback period that were identified as the major constraints to BOA loan repayment.

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