What factors affect the cost of money? Use at least one outside source. You may

Question

What factors affect the cost of money? Use at least one outside source. You may form your own opinions as well but support them with research. I need examples to understand the four factors please.

The four factors that affect the cost of money are:

1. Production Opportunities - the returns available within an economy from investment in productive (cash producing) assets.

2. Time Preferences for Consumption - the preferences of consumers for current consumption as opposed to saving for future consumption.

3. Risk - the chance that a financial asset will not earn the return promised.

4. Inflation - the tendency of prices to increase over time.

Explanation / Answer

Elements Affecting The Cost Of Money

1. Creation Opportunities

Creation opportunities allude to the gainful open doors for interest in beneficial resources. Increment underway open doors in an economy expands the expense of cash. Higher the creation opportunities more will be the interest for cash which prompts higher expense of cash.

2. Time Preference For Consumption

Time inclination for utilization alludes to the inclination of buyers for current utilization rather than future utilization. The expense of cash additionally relies on upon whether the customers want to devour in current period or in future period. On the off chance that the buyers like to expend in current period, they spend bigger segment of their income in current utilization. It prompts the lower sparing. Lower sparing decreases the supply of cash bringing about the expense of cash increment. Thusly, as much as the shoppers give high inclination to current utilization, the expense of cash will increment and the other way around.

3. Hazard

Danger alludes to the shot of misfortune. In the setting of budgetary markets, danger means the chance that speculation would not deliver guaranteed return. The level of danger saw by speculators and the expense of cash has positive relationship. On the off chance that a financial specialist sees high level of danger from a given venture option, he or she will request higher rate of return, and subsequently the expense of cash will increment.

4. Expansion

Expansion alludes to the propensity of costs to increment over periods. The normal future rate of swelling likewise influences the expense of cash, in light of the fact that, it influences the obtaining force of speculators. Expanding in rate of expansion results in decrease in buying force of speculators. The speculators will request higher rate of come back to similar against decrease in acquiring force in view of expansion.

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