Funding Generally

Funding Generally

Funding, generally the conversion of short-term into longer-term, more permanent, obligations. The receipts from the sale of longer-term securities are used to repay shorter-term liabilities. Companies tend to press ahead with funding in times of economic prosperity when share markets are buoyant with high prices and low yields. Government funding operations (including those of dominion, colonial and local government s) are likely to occur in times of low long-term interest rates.

This need not always be true. In recent years the term funding has been widely used with reference to National Debt management as an instrument of monetary policy, rather than with reference to a 'sound' structure of National Debt. Sales of long-dated securities, coupled with purchases of Treasury bills, tend to reduce the availability of the latter and thus the liquidity of the joint-stock banks and the credit base of the private sector of the economy. Monetary policy might thus call for funding operations in times of relatively high interest rate.

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