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Cases in point are explored through some major financial institutions to show the financial statements unreliability to measure asset values. The role of financial intermediaries and imperfect information are then delved into, as to how they propelled the crisis. In order to provide a conclusive view of the global financial crisis, the paper ends with a discussion about how asset securitisation has ended up in speculations, market manias, and eventually a financial crash in the global financial system. With all these, certain regulations are proposed
The invisible hand view of the economy, as explored in the book “Economics” by Samuelson and Nordhaus, will fail to exist under two conditions: when there is imperfect competition and imperfect information, and when there are market externalities. The failure in major financial markets exists because of either of these conditions.
Prior to the financial crisis, the financial markets such as stocks, bonds and mutual funds markets are considered markets where the invisible hand operates. The stock market has always been referred to as an efficient market by economists. According to Brealey, Myers and Marcus, “the competition [in this market] to find misvalued stocks is intense. So when new information comes out, investors rush to take advantage of it and thereby eliminate any profit opportunities (2004, 165).”
An efficient market, according to Samuelson and Nordhaus in their book “Economics” is defined as “one where all new information is quickly understood by market participants and becomes immediately incorporated into the market prices (2004, 534).” This characteristic of the stock market as an efficient market is attributed to the availability of timely information which is incorporated in the prices of the stocks.
The stock market indeed needs investors who believe
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Answer: A put option and a call option are the two different options on a future or forward contract. An option is basically a financial derivative contract that provides a party the right to buy or sell an underlying asset at a price defined in the contract.
According to Allen and Gale (2000, chap 1), Financial intermediaries can be broadly classified into: deposit taking institutions such as banks, credit unions, savings and savings societies; Insurance schemes such as life insurance policies; investment ventures such as retirement benefits schemes and mutual funds.
Among the different product traded are equities, fixed income securities, derivatives and foreign exchange. This paper will focus on the foreign exchange market in the U.S. and the types of foreign exchange transactions. It will also focus on the factors affecting the interest rates, ease or difficulty of forecasting the interest rate changes, role of Federal Reserve towards the U.S.
Both developed and developing countries have faced the severity of the consequences of this crisis. While the crisis had taken shape, economists, politicians and researchers were concerned about the causes that triggered a crisis of such a dimension. Although it was quite late and the crisis was already in full swing, researchers claim that prior signs were visible about the occurrence of the crisis.
This paper will define what financial markets and institutions are and their implication in an economy particularly in a largely consolidating world market.
Financial markets "consist of agents, brokers, institutions, and intermediaries transacting purchases and sales of securities." The individuals and institutions operating in the financial markets are linked by contracts and communications networks that form an externally visible financial structure, laws, and friendships.
Market forces determine these factors. For example, a gold mining company can control the volume and, at least partially, the cost of gold it produces however its profitability depends on the spot price of gold, a
US economy, forced banks to incur billions in losses, and latter spread to the UK causing near bankruptcy of Northern Rock in Newcastle that was finally nationalised in February 2008. In this paper, the effect on sub prime loans will be discussed and a closer look on its effects
An OBS activity moves onto the balance sheet as an asset or liability when a contingent event occurs. An event which the bank has no control upon is the one being referred to as a contingent event. Occasionally, as far as the original agreement is
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