The role of government UAE loan among financial institution in Fujairah

A Capstone-Research Proposal Submitted to

Dr. Burton A. Aggabao, in partial fulfillment of the requirements

Business 400208. Research Methodology

First Semester, Academic Year 2013-2014

Table of Contents

CHAPTER 1. 3

INTRODUCTION.. 3

The Problem and Its Background.. 3

Conceptual Framework (Research Paradigm) 4

Statement of the Problem.. 5

Hypotheses of the Study.. 5

Significance of the Study.. 6

Scope and Delimitations of the Study.. 7

Definitions of Terms. 7

Chapter II. 8

Review of Related Literature.. 8

Chapter III. 9

Methodology.. 9

Research Design.. 9

Population Frame and Sampling Technique. 9

Description of Respondents. 9

Data Gathering Instruments. 9

Statistical Treatment of Data.. 10

Bibliography.. 11

APPENDICES. 12

CHAPTER 1

INTRODUCTION

The Problem and Its Background

Government UAE loan  has helped in Monetary policy in Fujairah. Monetary Policy is a process by which the central bank of a Fujairah controls the money supply in that country. The fundamental goals of the monetary policy are to stabilize prices and reduce unemployment rates among others. The monetary authority often uses tools of monetary policy to adjust the supply of money in a country. These tools mainly target the interest rate in pursuit of promoting economic growth and stability in Fujairah. Depending on the situation on the ground, the monetary policy applied can be expansionary or contra-dictionary. Expansionary policies aim at reducing unemployment rates by increasing money in circulation whereas contractionary policies aim at lowering inflation rate by reducing money in circulation. During the summer of 2007 financial crisis came up in the UAE The reasons that led to the crisis are traceable as pointed out by Brunnermeir (77). According to Gourinchas (27) there was excess demand for safe debt instruments which made the financial sector to come up with pseudo triple-A assets which are vulnerable to financial crisis. Crisis in 2007-09 “reflected panic in wholesale funding markets that left banks unable to roll over short-term debt” (Wheeler 89). Once the crisis hit, it also became rapidly obvious that the policy interest rate was not a sufficiently powerful instrument to offset the contraction in aggregate demand and stabilize output. With federal funds rate rapidly approaching the zero nominal bound, traditional monetary policy had to be supplemented by vigorous fiscal policy as well as non-conventional monetary policy. Aggressive reaction to financial crises should be taken by the central banks (Wheelock 89).

Conceptual Framework (Research Paradigm)

According to Gourinchas (27) there was excess demand for safe debt instruments which made the financial sector to come up with pseudo triple-A assets which are vulnerable to financial crisis. Crisis in 2007-09 “reflected panic in wholesale funding markets that left banks unable to roll over short-term debt” (Wheeler 89). Once the crisis hit, it also became rapidly obvious that the policy interest rate was not a sufficiently powerful instrument to offset the contraction in aggregate demand and stabilize output. With federal funds rate rapidly approaching the zero nominal bound, traditional monetary policy had to be supplemented by vigorous fiscal policy as well as non-conventional monetary policy. Aggressive reaction to financial crises should be taken by the central banks (Wheelock 89).

Statement of the Problem

The study will assess whether the government has been responsible among financial institution in Fujairah.

Hypotheses of the Study

Ho: The UAE Government has not been responsible for loaning financial institutions in Fujairah.

H1: The UAE Government has not been responsible for loaning financial institutions in Fujairah.

Significance of the Study

A change in interest rates impacts the UAE and Global financial environment in both positive and negative ways. Interest rates affect spending in that if the interest rates are low many people are willing to borrow money for purchases. With low interest rates there is creation of a ripple effect of an increased spending in both the UAE and Global financial environments. Conversely high interest rates mean that consumers have no access to disposable income and they cut on their spending. The tight lending standards make people borrow less and spend less. Businesses will also reduce employees and hold off any purchases of equipment.

The study will be important in determining how interest rates also impact the stock and bond markets in the UAE and global financial environment. An increase or decrease in interest rates has an impact on business and consumer psychology. Rising interest rates lead to businesses and consumers cutting back on their spending .This leads to a fall in earnings and consequently a drop in stock prices. On the other hand a fall in interest rates leads to increased spending and thus stock prices rise. Interest rates also affect the dollar value versus other countries in the global market environment if interest rates are high in the UAE compared to other countries investors from all over the world will want to invest in the UAE so as to earn the high returns. Therefore, the increase in the demand for the dollar pushes its value up. The study will therefore be essential in determining the kind and level of correlations.

Scope and Delimitations of the Study

The delimitations of the study are contact with government officials and the population chosen. The researcher plans on contacting the financial institutions via email, and the delimitation is that the administrators will respond by sending the information requested. Next, the researcher chose 10 banks to survey because of the convenience. The next delimitation is selecting general and special study group.

Chapter II

Review of Related Literature

Reserve requirement

This implies the fraction of demand deposit accounts and fixed deposits that must be held as reserves at the Federal Reserve Banks. They are non-interest bearing reserves. An increase in reserve requirements discourages borrowing by banks hence individuals thereby restraining economic activities. A decrease in reserve requirements ratio encourages borrowing by the banks. This avails enough cash to banks for lending to individuals which in turn stimulates economic activities.

The UAE Financial Institution decided to reduce the reserve ratio to encourage borrowing.

Discount rate