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This paper examines the effect of rate uncertainty (first for the loan rate alone, next for both asset and liability rates) on the liability-funding decisions of a risk-neutral intermediary. In this model a la Pindyck, rates evolve according to stochastic processes, convex adjustment costs arise from the dichotomy of existing (core) deposits and new savings balances, and the intermediary's cash flow is embedded into capital market theory. Then we show that the stationary equilibrium obtains at the intersection of the locus of no change in deposit holdings with the isocline of zero change in savings balances. Loan-rate uncertainty alone shifts the savings isocline outward, when marginal adjustment costs are rising at an increasing rate; but when asset and liability rates are uncertain, their impact on the mean intermediation spread, core deposit holdings and adjustment costs depends on whether they are correlated or not.

In this paper, models of credit rationing are analyzed using quarterly data on domestic bank loans of four countries. First, models of temporary (dynamic) credit rationing are considered. The price (interest rate) equation proposed by Bowden is estimated assuming equal and unequal adjustment speeds under excess demand and supply conditions. Second, the stability of the interest-rate equation is tested. We motivate this test by the fact that permanent (supply-side equilibrium) credit rationing implies instability of this regression relationship. Statistically significant credit-rationing effects are found for the countries considered, with the exception of the U.S.

In this paper, the determinants of commercial loan rates are analyzed using cross sectionevidence drawn from a survey of commercial bank lending. The objective is to obtain evidence in order to evaluate whether commercial loan rate behavior is consistent with the implications of three alternative theories of banking behavior and therefore provide evidence about the validity of these theories. In general, the cross section evidence leads to the conclusion that both imperfect competition and risk aversion in a portfolio context are important elements in understanding the pattern of commercial loan rates.

A model is developed and utilized in this paper to value a life-of-loan interest-rate cap on an ARM that reprices monthly. The value of the cap is seen to depend importantly on both the slope of the term structure and the variance of the 1-month rate. However, the cap value is not sensitive to the source of the slope of the term structure — what precise combination of interest-rate expectations and risk aversion determined the slope. This insensitivity is fortunate because of the great difficulty of knowing at any point in time why the term structure is what it is. Given the variation in the slope of the term structure and the variance of the 1-month rate that occurred over the 1979–84 period, the addition to the coupon rate on a 1-month ARM that lenders should have charged for a 5% life-of-loan cap has ranged from 5 to 40 basis points.

A borrower-lender relationship is modelled, and the effects of temporary shocks on lending policy are studied. The loan rate is shown to respond sluggishly, thereby influencing shocks' effects on borrower survival, in some cases dampening them.

SUMMARY The mean internal rate of return (IRR) on Leucaena leucocephala plantations in Taiwan at the end of the first 5-year rotation was determined by Hertz's method, a computer-based capital investment risk analysis procedure, to be 7.4% with standard deviation of 16.9%. This IRR is higher than can be obtained for other tree species in Taiwan. The cumulative probability of obtaining an IRR greater than 9% (the secured loan rate) is 38%. Thus there is some potential for making a profit from planting L. leucocephala in Taiwan but proper site selection is essential.

The issue of whether students should receive an interest-free non-repayable grant or an interest-bearing loan is analysed in terms of an actuarial comparison of the relative costs of financing tertiary education under a pure loan as against a pure grant scheme. Whether one is cheaper than the other to the students depends on factors such as the loan rate of interest, the student population growth rate, the number of years of a program of study, the working life span, and the failure rate of students. Due to the political obstacles of levying a “tertiary education tax”, a loan scheme may be more flexible and efficient than a grant scheme in meeting the needs of the students.

There is concern that the recent wave of corporate mergers and acquisitions, largely financed by debt, raises interest rates and reduces investment. This paper demonstrates that the emphasis on the cost and availability of credit in discussions of this issue may be misplaced. As asset market model is presented which shows that an increase in debt-financed mergers could stimulate aggregate investment by raising the value of capital relative to replacement cost even though the loan rate rises and the supply of credit is unchanged.

Wheat farmers operate in a quasi free market in which guaranteed price minima are available upon satisfaction of governmental imposed preconditions. A method is developed with which farmers can evaluate the profitability of available alternatives. In general, there must be sufficient land so that the acreage of wheat relative to the allotment exceeds the ratio of the loan rate to the expected free market price. These break even criteria can be used by policy planners to evaluate proposed programs and to determine their efficacy before their implementation. Ideally, programs should be structured so that the most profitable alternative for the farmer is also the one that will achieve the policy goal. An analysis of statewide aggregate data confirms the theoretical conclusion, based on this methodology, that full participation without additional voluntary diversion was the most profitable alternative open to the wheat farmer in 1964.

Corn price differentials among country elevators often exceed norms of perfect competition. Identification of causal factors may suggest remedial policy decisions. This study indicates that the variables of seasonal adjustments, local demand and supply conditions, availability of transportation facilities, and government loan rate are significant influences in price variation.

This report examines three forces that could expand U.S. wheat exports: (1) a lower wheat price support; (2) liberalization of wheat trade by the European Community, Japan, and the United States; and (3) devaluation of the U.S. dollar. Results suggest that lowering U.S. loan rates by 25 percent could enable U.S. exports to expand by 37 percent over several years. A similar expansion in wheat exports would take place if wheat trade were liberalized. The effects of devaluation are much less apparent. Aggregate indexes of the value of the dollar can give a misleading indication of expected trade impacts. It is important to identify where the dollar is changing in value, country by country.

Between the early 1980s and 1986, the share of new conforming (under $153,000 in 1986) conventional fixed-rate mortgages (FRMs) that went into Fannie Mae and Freddie Mac mortgage pools increased from under 5% to over 50%. The impact of these agencies moving from negligible participants to dominant players in this market is investigated in this study by an analysis of yields on 4,900 loans closed in California during May–June 1978 and 1,800 closed in May–June 1986.

During the first 4 months of 1975, Congress considered a number of amendments to the Agricultural and Consumer Protection Act of 1973. The amendments were principally directed toward raising loan rates and target prices for major U.S. crops and support rates for dairy. Pressure for raising target prices and loan rates was largely due to substantial increases in input prices occurring since the enactment of the August, 1973 Act. Between July of 1973 and December of 1974, the index of prices paid for production items, interest, taxes and wage rates increased by 22 percent. Farmers and farm leaders expressed fear that high yields, coupled with the full production stance of the Administration,, could throw the crop sector into a cost-price squeeze, depressing farm income. Given these circumstances, proponents of the amendments argued that target prices and loan rates under the Act of 1973 gave farmers inadequate protection from low prices. (This abstract was borrowed from another version of this item.)

The object of this chapter is to adapt and apply the theoretical model to the commercial loan market in Belgium over the period 1966–1980.

The conventional wisdom approach to controlling the growth of money is that the central bank can, if it wishes, control the money supply process by discretionary control over the amount of liabilities it issues.

The United States has used several export promotion programs since the 1950's to boost agricultural exports. These programs have been designed to increase exports through export expansion activities such as sales credit and market development assistance, or through initiatives that lower export prices, such as export payments. The recent declines in U.S. agricultural exports have led to greater emphasis on these programs. Their success will depend greatly on the accompanying changes in domestic agricultural policies, changes in world market conditions, and competing exporter responses to U.S. agricultural policies.

Over the past two decades, studies of compensating balances have taken two principal forms: surveys of contemporary compensating balance practices, and attempts to ascertain a theoretical basis for these practices. Surveys by Baxter and Shapiro [2], Burns [3], Cagle [4], and others have concentrated upon bank behavior, but have nevertheless uncovered four principal motives why firms hold compensating balances. These balances: (1) provide the firm with liquidity services, and can be used to compensate the bank for (2) furnishing credit, (3) offering a loan-rate concession, and (4) performing a variety of technical services.1 The parallel theoretical literature on compensating balances has been mainly concerned with two (related) issues: whether compensating balance requirements are rational,2 and the role of competition in explaining these requirements.3 Although many of these studies have paid lip service to all four motives, only the loan rate concession had been made an ex

r 9H E maximum rate of charge which the state permits licensed . personal finance companies to charge is often criticized as excessive. Lenders engaged in the business defend these rates on the ground that the high costs of extending small loans necessitate legal rates which are sufficiently high to induce capital to enter into the industry and engage in business under the licensing and regulation of the state. The lenders contend that if the maximum rate of charge is not high enough to permit profitable investment of capital, the business will disappear entirely, thus cutting off these credit facilities from the low-income groups which normally make up the market for personal finance loans,3 or it will be conducted illegally at still higher rates of charge by persons who are willing to risk criminal prosecution for violating the usury statutes.4 Since its inception the industry has been subjected to a great deal of pressure to reduce the maximum rates of charge permitted by the usury statutes or other regulatory legislation. In part, the pressure for rate reduction emanates from well-meaning people who are unfortunately suffering from a cultural lag. Accepting the widespread notion that any charge in excess of 6 per cent per annum is usurious, they consider a rate of 3 per cent per month on unpaid balances or 36 per cent per annum on the average outstanding balance as an immoral exaction. Actually, these companies operate under a statute specifically exempting them from the usury law and maximum rates charged are established by law.A The personal finance companies are credit agencies having relatively high costs of lending, and it is unlikely that they could operate under the ordinary usury statutes. Where small-loan laws do not exist, this type of credit-small loans to low-income borrowers-is either not available or available only from loan sharks.6 Another source of pressure for rate reductions comes from the illegal lenders. Their business is seriously limited by the competition of personal finance companies, and, in order to remove this competition, they exert pressure to lower the maximum rate of charge permitted to personal finance companies to a point where these lenders can no longer continue in business at a profit. Once the personal finance companies are driven I The author is indebted to Dr. Ralph A. Young, director, Financial Research Project, National Bureau of Economic Research, for his painstaking criticism of and contributions to the content of this article. However, all opinions expressed are solely those of the author.