When interest rate is higher than equilibrium rate of borrowing loanable funds then the financial system has __________?
Correct answer: C. surplus of funds
- A. short-term funds
- B. long-term funds
- C. surplus of funds
- D. deficit of funds
Explanation
An interest rate above equilibrium encourages saving and lending while discouraging borrowing, so the quantity of funds supplied exceeds the quantity demanded. This creates a surplus of funds.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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