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Neither a Lender nor a Borrower Be - Essay Example

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This essay "Neither a Lender nor a Borrower Be" discusses lending and borrowing that has made the world a better place. Had humanity set its thoughts and convictions on Shakespeare’s ideas, the world would be more imbalanced than it is today…
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Neither a Lender nor a Borrower Be
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Extract of sample "Neither a Lender nor a Borrower Be"

If Shakespeare’s statement, “neither a lender nor a borrower be...” became a general law, the implication would be that there would be no willing lenders nor borrowers. In essence, everyone and every region and individual would rely on its own resources to develop economically. Loans have an incessantly enhanced role in corporate activities. Bank loans are the major source of financing small and medium enterprises in most countries. Even though there are other possible sources of loans, banks have been preferred in the recent past given their well-organized and institutionalized mechanisms of loan lending and borrowing. Besides, it provides easy and cheap liquidity than other available lenders and intermediaries (Delaume 2012).

In the event that Shakespeare’s statement was a general law, there would not be the expanded financial liberalization and enhanced volumes of private capital flow in the developed countries that were characteristic of the 1990s. The post-crisis capital mobility in the developing world (especially in Asia) was a result of four forms of capital inflows; portfolio investments, direct investment, bank loans, and other investments. Bank loans in countries like Malaysia saw their economies grow from third world economies to second world status (Shin-Ichi, 2013). Loans that were advanced to the states through World Bank and IMF helped improve the overall economy of the nations and the welfare of their citizens. This would not be possible had Shakespeare’s statement been a general law.

In domestic financial markets, banks are the most outstanding means of channeling savings to investments with the most favorable returns. In the event that the statement by Shakespeare became a common law, banks would not provide liquidity and permit efficient pooling of risks (Shin-Ichi, 2013). The fact that there are lenders and borrowers creates an environment that enables the activities of banks to alter the composition of capital in a manner that is potentially good for enhancing capital accumulation. The development of banks as lending institutions institutionalizes them as the gatherers of information about firms and reduces corporate myopia by conquering the quandaries associated with informational asymmetry (Shin-Ichi, 2013). The powers are given to the banks by depositors. These powers have led to the availability of valuable information that helps a firm engage economically with another. Had lending and borrowing been absent, such powers would not be within the reach of banks.

Without the ability to get a loan to make one’s idea practical, there would be a situation of impeded innovation (Delaume 2012). The technological advancement that has become characteristic of the 21st century would be missing. Many people who have their ideas change the world have been benefactors of loans.

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