Money market environment
1. Why is information important to lenders? To borrowers? What type of information do parties engaging in financial transactions need? Why does it make sense to centralize information gathering and provision? How is this done? Is good availability of information beneficial to borrowers? For which borrowers in particular?
2. In many developing countries where debt financing is scarce, the deficiency is made up to some extent by the informal sector. A common device is to secure the loan with a postdated check. In countries where this device is used, failure to honor a check is a felony. If the borrower fails to pay, the lender deposits the check. If it bounces, the borrower goes to jail (in Bolivia, for about 4 years).
A. Is this a good method of dealing with default? How does the answer depend on the riskiness of the loan?
B. How will reliance on this method affect the amount of lending that takes place?
3. Why is it surprising that money markets exist? Why do they exist nonetheless? What factors explain the relative size of money markets in different countries?