Saturday, February 15, 2020
Homework for Eco Essay Example | Topics and Well Written Essays - 250 words
Homework for Eco - Essay Example It is only through capital investment and not capital consumption that growth can be experienced in the economy (Callum). In the Chinese and Middle East context, Faber notes that the Chinese economy is a growing economy due to its investment and increased production rather than consumption. Additionally, China exports to the developing and emerging economies totally by passing the old world order. However, its overdependence on the raw materials such as oils from the Middle East could be an undoing in the future. Middle East is known for its instability and therefore the overdependence on their oil for production could greatly affect the economy (Callum). The approach reduces the moral hazard by ensuring that the creditors do not experience losses. This is due to the fact that losses on the creditorsââ¬â¢ side have more detrimental effect on the institution than the loss of Equity by the institution. Creditors impact more on the company than the equity holders. The Creditors can easily cause more losses in case they themselves incur losses. It is ideal than a rescue that protects both creditors and equity holders (Mark). This approach eliminates the problem completely due to the fact the owner who has all the liberty to invest on behalf of the creditor and who has access to more information acts responsibly. This is due to the fact the owner incurs charges and possible losses in case of poor investment options. Senator Lincoln proposed that the commercial banks be forbidden to trade derivative securities in 2010. This is with the intent of preventing the banks from using the cheap deposits to subsidize risky derivative businesses. The proposal also prevents banks from using emergency banking facilities. This proposal encourages financial intermediaries to divest their derivatives by forbidding the government from giving these banks assistants such as tax breaks (Yves). Despite the fact the
Sunday, February 2, 2020
Stock Markets Essay Example | Topics and Well Written Essays - 1500 words
Stock Markets - Essay Example Hypothesis being the Greek word for "assumption", the Efficient Markets Hypothesis therefore assumes that capital markets, of which the stock or equity market is one, is efficient. And what we mean when we say that a market is efficient is that buyers and sellers of stocks have all the relevant information they need to make an intelligent decision to either buy or sell stocks in companies at a certain price that reflects all available information. The first to propose the hypothesis is Eugene Fama of the University of Chicago in a paper (1970) where he presented a method of testing the efficiency of the New York Stock Exchange. Since then, hundreds of studies have been conducted to either prove or disprove the hypothesis. Since we know that in science, a scientific hypothesis that survives experimental testing becomes a scientific theory, the fact that the efficiency of markets remains a hypothesis begs the question: why Do test results thus far show that capital markets are inefficient because scientific investigation has not proven otherwise Or, if capital markets are efficient, and stock prices reflect all available information, then why is the trade on mere pieces of paper (called stocks) growing Is it a case of altruistic holders of stocks, seeing the potential for future earnings, selling these stocks to others in order to share the wealth Or are all sellers of stocks just looking for another fool to unload a worthless piece of paper And why do people still make (and lose) money in the stock market And if capital markets are efficient, are all investing decisions intelligent and based on complete information As we will show, capital market efficiency does not necessarily mean an increase in the intelligence quotient of all investors. Power of Information in Capital Markets Today Capital markets have the advantage of getting buyers and sellers to agree on a deal without the use of financial intermediaries like banks and insurance companies who direct the flow of resources from savers to borrowers. Capital market transactions are therefore deemed more efficient in the absence of intermediaries except for brokers who put buyers and sellers together and get a small commission for the effort, making the deal almost frictionless. This is one factor that leads to our hypothesis: the low transaction costs of capital markets enhance its efficiency. With transaction costs negligible, the only real factor that determines the current price of a stock should be the net present value of its future cash flows in the form of dividends and, assuming the company lasts long enough, capital gains when the stock is sold at a future date. After all, a stock is nothing else but a claim to a company's future cash flows. A company's cash flow is affected by several factors, among which are its business prospects, management quality and strategic plans, the economy's over-all performance, and the company's standing within the economy. If all these pieces of information are known, making a study of free
Subscribe to:
Posts (Atom)