Discussion Forum: Module3 Please read the following scriptures: Exodus 22:25; De
ID: 344153 • Letter: D
Question
Discussion Forum: Module3 Please read the following scriptures: Exodus 22:25; Deuteronomy 23:19-21,24:10-13; and Matthew 25:14-30 Please read the following article provided by the von Mises institute on the views of John Calvin and Martin Luther on lending http://mises.org/daily/4070 One of the basic financial relationships is the consideration of risk and return. All else equal, as risk increases the return (interest rate) also increases. Therefore, a corporation or individual who exhibits a higher level of risk will be required to pay a higher interest rate when they borrow money. Banks frequently rely upon credit reports, credit scores, and financial history to determine if credit will be extended and the resulting interest rate. High-risk borrowers are frequently denied commercial bank credit, leaving them to seek other forms of credit such as payday loans or title loans which frequently have very high interest rates. Based on the readings above and the information in the textbook, please consider the following questions . What is the importance of borrowing money in our society? Is it appropriate to charge interest? . How do these scriptures inform the practice of lending money? What are usury laws and how do they impact the availability of credit? . How should the poor be treated with regards to loans?Explanation / Answer
1. The people in the society will need money at some point in their lives. Not everyone can become millionaires and the normal people will need money. So borrowing money is very important in the society in order to lead a comfortable life sometimes and to stay healthy sometimes. The requirements of the people keep changing and they will borrow money for various reasons. It is important because the government and banks will not help the poor when they are in need directly. The people will find ways to get the money and meet their needs. So borrowing money plays an important role.
2. It is appropriate to charge interest but it is not appropriate to charge high interest even after knowing that the person needs help and he has a situation to face. The financial institutions need to use the human touch while doing business. The banks cannot run and make money without charging interest so it is definitely appropriate to charge interest but they need to consider various factors and be kind enough to help the person who is in need. Taking advantage of the situation and charging high interest is highly inappropriate.
3. The scriptures tell us how the financial institutions work and what are the various parameters they consider before they provide a credit to a person. The person in urgent need will need to pay a higher interest compared to a person who is financially sound. Risk analysis is the most important factor and that leads the way for the banks to operate in the money lending business.
4. Usury laws talk about the unethical and immoral monetary loans that benefit the lender more than the receiver. They have a huge impact on the availability of credit because the people who can only afford to pay very high-interest rates can avail the loans and the poor people in the society can never get a loan under this law.
5. The poor should be neglected first of all and the governments should come up with schemes to help the poor in getting loans at an affordable interest rate. We know that the financial risk analysis will decide the credit limit but the banks and financial situations need to be little kind enough to understand the problems and work with the government to help the poor in the country. This way both the government and the banks will become close to people and also gain the respect of the poor. The interest rate should again be not very high and it should be affordable so that they can solve their problems and also be able to repay it back.