When interest rate is lower than equilibrium rate of borrowing loanable funds, then the financial system has _________?
Correct answer: B. deficit of funds
- A. surplus of funds
- B. deficit of funds
- C. short-term funds
- D. long-term funds
Explanation
When the interest rate is below equilibrium, borrowers demand more funds than lenders are willing to supply, creating a deficit or shortage of funds. Equilibrium is restored as the rate rises.
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About Business Finance
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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