Discuss the importance of the market for loanable funds and the market for foreign-currency exchange economic...

Discuss the importance of the market for loanable funds and the market for foreign-currency exchange economic growth.

Expert Solution

The market for loanable funds helps businesses get access to credit. The loanable funds market brings together people who demand savings and people who supply savings. Without the market for loanable funds, businesses would not get access to credit and they would not be able to invest and expand. This would seriously hurt economic growth. Therefore, the market for loanable funds supplies the fuel for economic growth in terms of credit supply.

In the foreign currency exchange market, the currency for one country can be exchanged for currencies of other countries at the prevalent exchange rate. Exchange rate market makes international flow of goods and finances possible. Without a foreign currency exchange market, there will be no international trade or flow of finance. Investors would not be able to invest in other countries without this market. So, there will be no Foreign Direct Investment (FDI). The absence of this market will sperate countries from one another and this will seriously hurt economic activities and growth.

Rahul Sunny answered 2 years ago

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