IDEAS home Printed from https://ideas.repec.org/h/pal/palchp/978-1-349-07535-5_3.html
   My bibliography  Save this book chapter

Risk and Financial Institutions

In: British Banking, 1960–85

Author

Listed:
  • John Grady
  • Martin Weale

    (Department of Applied Economics and Clare College)

Abstract

The modern theory of risk owes its origins to Keynes (1936) and Hicks (1939). They propounded the theory of liquidity preference, arguing that, other things including return being equal, investors prefer liquid assets of certain value to illiquid assets of uncertain value. This allows them to meet potential and unforeseeable demands for funds. Thus investors require an additional return, known as a risk premium, on assets whose price varies, in order to compensate for the uncertainty about the price that such assets may command at any time. It was also argued that borrowers would prefer long-dated liabilities which require fixed interest payments for the duration of the debt. This means that, for the life of the loan, they face known interest payments and that they can make, well in advance, the arrangements necessary for its repayment. Indeed, if borrowers did not have reasons for preferring long-term debt, there would be no market in such debt. Private borrowers must be prepared to pay the premium demanded by the lenders.

Suggested Citation

  • John Grady & Martin Weale, 1986. "Risk and Financial Institutions," Palgrave Macmillan Books, in: British Banking, 1960–85, chapter 2, pages 20-34, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-07535-5_3
    DOI: 10.1007/978-1-349-07535-5_3
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:palchp:978-1-349-07535-5_3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.