Question

1) Suppose medical research confirms earlier speculation that red wine is good for you. Why would banks be willing to lend to vineyards that produce red wine at a lower interest rate than before?

2) You have designed a new scarf that everyone seems to want. Every time you wear it, people ask, where did you get that scarf? You go home and think about starting a business, but later laugh at yourself because all you have saved is $3000. How can you possibly start a business to make these scarves? What are your options? What area of finance would this question relate to?

3) Your grandmother just passed and left you $50,000. You decide to keep it in the bank where you earn interest of just over 2% per year. Your friend tells you to invest in the stock market, which earned over 26.5% in 2013. You, however, want to impress your friends and are thinking about buying a BMW X3 for $45,000. What factors should you consider in making a decision? What area of finance does this question relate to?

Answer 1

1). If the medical research leads to increased demand for red wine, then banks may be willing to lend to vineyards at a lower interest rate, as perceived risk would be lower.

2). For a starting home business, $3,000 funds may be sufficient provided your other living costs are taken care of. Otherwise, you can think of other financing options like asking family/friends for a loan, approaching your bank for a loan with a clear business plan or you can possibly crowdfund it. This would relate to capital fundraising.

3). Your decision about how to spend the $50,000 left to you, by your grandmother would depend on your financial situation, your future planning and your personal preference for saving or spending. If all your financial needs are already catered to (including savings) then maybe you can indulge yourself by buying the BMW X3. This pertains to personal financial management.