Central banks have injected moral hazard into global markets, which skews investor behavior toward risky assets because the downside of risk is being underwritten by the central banks. Thus, bubbles occur, and bubbles are bound to burst. Crticially discuss.
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Central banks have injected moral hazard into global markets, which skews investor behavior toward risky assets because the downside of risk is being underwritten by the central banks. Thus, bubbles occur, and bubbles are bound to burst.
Crticially discuss.
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- Financial intermedires play a crucial role in an economic crisis they are responbile for both causing The market to crash and then helping it recover from the crisis is this statement true?Discuss with an exampleWall Street firms have traditionally compensated their traders with a share of the trading profits that they generated. How might this practice have affected traders’ willingness to assume risk? What is the agency problem this practice engendered?“Financial intermediaries play a crucial role in an economic crisis–they are responsible for both causing the market to crash and then helping it recover from the crisis.” Is this statement true? Discuss with an example.
- Which failures in risk management systems have had catastrophic consequences in financial markets? Illustrate with examplesMoral hazard is a barrier to financing global growth because: OPTIONS: if investors have trouble identifying high-risk firms they may be unwilling to give money to creditworthy firms. firms sometimes have trouble determining whether they need funds or not. there is the possibility that the funds are used for riskier behavior than the lender agreed to. of the differences between financing using loans, portfolio investment and foreign direct investment.Do you agree that banks have high operating risks? Why?
- Recession, inflation, and high interest rates are economic events that are best characterized as being a. company-specific risk factors that can be diversified away. b. among the factors that are responsible for market risk. c. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers. d. irrelevant except to governmental authorities like the Federal Reserve. e. systematic risk factors that can be diversified away.The asymmetric information problems that act as a barrier to efficient allocation of capital is referred to as financial friction. When financial friction increases, economic activity declines. A financial crisis occurs when information flows in financial markets experience a large disruption, with the result that financial friction increases sharply and the markets stop functioning, economic activity will collapse. Discuss the dynamics of financial crises in advanced economies.i)discuss accounting issues in risk management, and explain the following terms: fair value hedge, cash flow hedge, foreign investment hedge, speculation ii)discuss some of the famous cases in which the lack of proper risk management policies and procedures have caused companies to incur large losses. iii)explain some general guidelines that senior management should follow to set up and maintain an effective risk management system. iv)explain how a currency swap can be used to hedge a stream of foreign cash flows. v)define interest rate derivatives, and compare and contrast them against bond derivatives.
- Banks are in the business of managing risk Risk is a fundamental element that drives financial behavior. Without risk, the financial system would be vastly simplified. However, the risk is omnipresent in the real world. Financial Institutions, therefore, should manage the risk efficiently to survive in this highly uncertain world. The future of banking will undoubtedly rest on risk management dynamics. Only those banks that have efficient risk management system will survive in the market in the long run. The effective management of credit risk is a critical component of comprehensive risk management essential for the long-term success of a banking institution. Credit risk is the oldest and biggest risk that a bank, by virtue of its very nature of the business, inherits. This has, however, acquired a greater significance in the recent past for various reasons. Foremost among them is the wind of economic liberalization that is blowing across the globe. India is no exception to this swing…Which of the following is a reason for financial regulation? a. To ensure market dominance by strong financial institutions. b. The failure of any financial institution may have a serious negative impact on individuals and economies. c. Banks cannot be trusted. d. To ensure government control of the economy.Investors and MNCs exporting or importing goods and services or making foreign investments throughout the global economy are faced with an exchange rate risk,which can have severe financial consequences on firms profitability,cash flows,and their market value,if not managed appropriately. MNC's use a number of external techniques of risk(exposure)management and resort to contractual relationships outside thier companies in order to reduce (or redistribute)the risk of foreign exchange losses.What are the determinants of hedging currency risk or foreign exchange exposures which pose risks to MNC's cashflows,competitiveness,marker value and financial reporting.
