Question 04 a) Briefly explain why a country without a robust financial system might struggle to achieve high rates of economic growth. b) What is the difference between moral hazard and adverse selection? Explain the "lemons problem." How does the lemons problem lead many firms to borrow from banks rather than from individual investors? c) Why was the Securities and Exchange Commission (SEC) founded? What effect has the SEC had on the level of asymmetric information in the U.S. financial system?

Question 04 a) Briefly explain why a country without a robust financial system might struggle to achieve high rates of economic growth. b) What is the difference between moral hazard and adverse selection? Explain the "lemons problem." How does the lemons problem lead many firms to borrow from banks rather than from individual investors? c) Why was the Securities and Exchange Commission (SEC) founded? What effect has the SEC had on the level of asymmetric information in the U.S. financial system?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter12: Managing Economic Exposure And Translation Exposure

Section: Chapter Questions

Problem 3IEE

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a. “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. b. Discuss the role of banks as financial institutions that fuel the economic growth of a nation.
Suppose the population of Area Y is relatively young, and the population of Area O is relativelyold, but everything else about the two areas is the same.a. Would interest rates likely be the same or different in the two areas? Explain.b. Would a trend toward nationwide branching by banks and the development of nationwidediversified financial corporations affect your answer to part a? Explain.
One of the main arguments against using Fiscal Policy is the crowding out effect. Suppose the government uses government purchases to stimulate the economy. a) Explain the crowding out effect in detail using a graph for the bond market, the money market, the foreign exchange market, and the AD SRAS LRAS model. b). Explain quantitative easing? c) If the Fed’s current policy is quantitative easing, do you think that there is a danger of the government’s current fiscal policy being crowded out? Why or Why not? Explanation required for credit.
What is a financial market? What is the role of a financial market? 3-2 What would happen to the standard of living in the United States if people lost faith in our financial markets? Why? 3-3 How does a cost-efficient capital market help to reduce the prices of goods and services? 3-4 The SEC attempts to protect investors who are purchasing newly issued securities by requiring issuers to provide relevant financial information to prospective investors. The SEC does not provide an opinion about the real value of the securities. Hence, an unwise investor might pay too much for some stocks and consequently lose heavily. Do you think the SEC should, as a part of every new stock or bond offering, render an opinion to investors on the proper value of the securities being offered? Explain.
Which of the following is NOT usually associated with “financial risk”? a. A rise in the country’s interest rates. b. A new government has been voted in. c. Fluctuation in a country’s currency. d. Difficulty in accessing funds from banks.
Question #1 – What is the ‘expectations gap’? Is there even anything the accounting profession can do to close this ‘Expectations Gap’? Question #2 – To converge or not to converge, that is the question. The adoption of IFRS by U.S. companies would it easier to compare U.S. and foreign companies, as well as for U.S. companies to raise capital in foreign markets.
Moral 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.
Which of the following is true of the current state of financial regulation for financial institutions (FIs)? Most banks can transfer risk on a greater scale and in more complex ways than before. Most FIs now conduct virtual global business, reducing the influence of very large FIs. Most global financial money and capital markets are deliberately disconnected. Most securities exchanges have required majority ownership by resident nationals.
1) What would happen to the standard of living in the United States if people lost faith in our financial markets? Why? 2) How does a profitable capital market help reduce the prices of goods and services? 3) The SEC attempts to protect investors who purchase newly issued securities by requiring issuers to provide relevant financial information to potential investors. The SEC does not provide an opinion on the actual value of the securities.Therefore, a reckless investor could pay too much for some shares and consequently lose a lot. Do you think the SEC should, as part of each new offering of stocks or bonds, give investors an opinion on the appropriate value of the securities being offered? Explain
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.
How do you relate development of global value chains in global economy and the causes of 2008 financial crisis ? Did government responses sufficient to prevent another crisis? If not, what do you suggest as plausible measures?
“The growth of international banking has been driven by a desire for increased access to capital, diversification of risk, and the expansion of financial services to a global market, but it has also led to increased risks and regulatory challenges.” State True or False and justify your answer as a short essay answer.