Question 1
Grameen Bank is a microfinance institution that was founded by the father of the microfinance institutions, Muhammad Yunus, with the principle aim to offer small loans to the poor people. Although the loans from the microfinance as little, they are enough to start a viable business especially among women. After the introduction of this institution, the microfinance institutions have spread all in Africa, Asia, United States, Latin America and Eastern Europe. However, these institutions are commonly founded by organization such as World Bank and government.
These microfinance institutions lend out money to groups of individuals but not to an individual. For instance, the Grameen Bank offers small loans to a group of at least five entrepreneurs-to-be at a time. This idea is effective in reducing costs incurred by the bank when issuing loans. Furthermore, this strategy also reduces the problems associated with the moral hazard such as the risk involved when borrowers spend their loans and fail to pay them back. When one of the five borrowers fails to repay the loan, the credit is cut from all the five borrowers, hence effective spending of the loan.
Grameen microfinance program is applicable in China as a means to eradicate poverty and empower women. This program can be used to finance the poor people and small business in the country through loans. Since women are more vulnerable to poverty than men, this program is a better way to upgrade their lives as well as that of their families. This program can therefore be considered as a solution to the poor people especially women since one is not required any security for the loan and the rate of borrowing is significantly low and affordable. With the collaboration of the Group Office of Poverty Alleviation and Development in China, the program can be viewed as a driving force towards poverty eradication in the country.
Question 2
Given the fact that no authority could allow the exchange in the Prison of War Camp by means of money, the principle and convenient medium of exchange was cigarettes. Since prisoners were confined to barter trade, they discovered that they could be better off through trade using cigarettes as money. Cigarette qualified as medium of exchange because it was an item that was acceptable to everyone in the camp since even though they could not use the item, it could be used by someone else. Cigarette contained some basic elements of money since they were convenient, durable and homogenous and could be applied in small transaction as well as larger transactions. Cigarettes were also considered as money because the Red Cross could supply them in sufficient, while the abundant smokers were confident that they would retain the value of the precious commodity in the camp.
The two main factors, which led to the debasement of the cigarettes as currency, were that cigarettes could not retain their homogenous element and bad Gresham’s Law. The Red Cross came up with cigarette substitute, pipe tobacco. One ounce of tobacco was exchanged for 25 cigarettes, and could be rolled to produce 30 homemade cigarettes. As result, this contributed to increase of the rolled cigarettes in the small economy. Therefore, one had to carefully inspect whether the cigarette has the standards required. The issue of the cigarette being unclear as a medium of exchange increased transaction costs and reduced trading. Consequently, the Gresham’s Law which suggested that the “bad money” drives “good money” out of circulations, revealed the reason why the cigarettes were no longer considered as a medium of exchange.
Another reason that caused the debasement of the cigarette as currency was the long-lasting propensity toward inflation. This was due to the reduction of the value of cigarette due to increase in the manmade cigarettes in the circulation. One ounce of pipe tobacco could make 30 cigarettes and could be obtained with only 24 cigarettes.
Question 3
Since there were no silver or gold in the island of Yep, the limestone deposits were used as a medium of exchange in the island. The limestone was curved into a huge stone disc that its diameter ranged from one foot to twelve feet. In order to facilitate transportation a pole was had to inserted sufficiently strong and large to bear the weight of the disc which was referred to as Fei. Fei qualified to be termed as a medium of exchange because people in the island realized that they needed was acceptable to everyone and one could not be interested to possess it. Since money could be defined according to its functions, i.e. unit of account, medium of exchange, and store of value, Yap stone could perform at least one of the functions. The stone was a store of value, measure of value and was also used as a medium of exchange. This meant that fei could be used to purchase various products as well as settling debts. The stone was also considered as a medium of exchange because it possessed a storable component and were able to maintain their purchasing power over a long period of time.
In my point of view the fei stones could be termed as commodity money. According to my knowledge, commodity money is the money whose value is obtained from the material out of which it is made. The large stone therefore falls in this category since it was curved from a huge limestone which is scarce commodity in the island. In other words the material that was used to make the fei was of great value in the island and as a result gave those stones the intrinsic value.
