Money, Banking, and Financial Markets Assignment

Money, Banking, and Financial Markets - Assignment guinea pigSince demand for money varies with interest rates, velocity as well as changes with changes in interest rates. Demand for money similarly depends upon the expectations about future interest rates. In an article published in The Globe and Mail on July 31, 2013, the author, Linda Stern, suggested to ignore advice such as Dont take a mortgage with you in hideaway, and Older Folks should invest more conservatively (Stern). In support to the view Dont take a mortgage with you in retirement, it is stated in the article that carrying forward mortgages oer a long period of time not only increases the stake of investment but also involves a greater expenditure on the side of the loan taker. Carrying a mortgage over a long period increases its value and interest, so it is advisable not to use a large inwardness when paying mortgages and instead to invest that extra amount in some other investment plans which whitethorn be bene ficial in the long run. Earlier payment of mortgages is related to the emotions of the loan-taker, reduces the risk and leads to savings payable to lower interest payments. Ignoring the advice may be risky, but it may bring greater potential and stronger misfortune of capitalization since no one is aware of the opportunities that may come in the future. The situation will be more understandable from the following example. A soulfulness has $100,000 in cash and a 15-year mortgage with a balance of $100,000 at 4% interest. Case 1 The person decides to pay saturnine his mortgage with the usable cash and to invest the mortgage payment that would have to be paid per month (i.e. $739) for 15years at 7%. By paying the mortgage, the person saves %33,143, and at the end of 15 years investment amounts to $237,706. Case 2 The person decides not to pay the mortgage and invest cash of $100,000 for 15 years at 7% interest. After 15 years, the investment amounts to $284,894, and $33,143 are p aid as interest for the mortgage. Subtracting the payment, a net take a leak of $251,751 is made by the person, if he/she decides to pay off the mortgage later. On deciding to pay off the mortgage, the person has received an emotional satisfaction, less risk and higher liquidity, but he/she has also suffered an prospect loss of $14,045. Thus, every financial investment and debt is added to a price and risk, but decision is to be taken wisely. In support to the view Older Folks should invest more conservatively, it is stated in the article that when a person moves towards old age, he/she should either invest less in stocks or withdraw all money from stocks and invest in instruments which will guarantee returns with less amount of risk involved. They may choose to invest in certificate of deposits or bonds. Investment on guaranteed returns for short depot may hold a support to the person at the time of retirement since it would assure a return at the end of the period. But ignorin g the advice, it can be said that investment in bonds too can be a risky investment to the investor since future can only be fictional and not ascertained. If the interest rate rises in future, the bond holders may lose value, and investment will amaze riskier. Even with the rise in the expected rate of inflation the investor may face the same risk. Thus, the person may face the same