Page:Indian Journal of Economics Volume 2.djvu/609

 ECO1VOMI DEVELOPE1V2, 591 each financial centre. o! these ten markets in one place may vary maintainin8 any fixed or particular relation The rates of interest in each without to one another, the only necessary relation being that in any market for investments realising income greater rate of interest will also be higher. be correct to say that the rate of having a risk or trouble of than in another market the It would not interest will be "correspondingly higher ", for there is no proportion maintained between the degree of risk or trouble and the increase of the rate of interest consequent thereon. It, all depends on demand and supply. If borrowers offering "gilt-edged" security demand huge amounts o[ capital the rate of interest in this market rises till it nearly equals the rate of interest iu the second market--that for but it can never solid steely yielding investments; rise to equal it because some of the supply in the second market becomes diverted to the first and the rate of interes rises in the second mrket, thoush not so much. Similarly if the supply o[ capital for speculative investment increases (as when a general rise of. prices puts huge profits into. the hands of persons of,. speculative tendency) the rate of return (anticipated) must needs decline; and in the speculative market the rate of interest will decline also in the other investment markets, but to a much less extent--in the "gilt-edged" market perhaps not at all. We may now proceed to examine the character of the investments offered in each of the five markets for "permanent" investments above defined, in other words the nature of the uses for which capital is demanded, and the contractual conditions usually offered by the borrower corresponding wRh such uses. Taking first permanent investments, we shall find that they assort themselves in the markets corresponding