This document provides an overview of financial markets and institutions. It begins by defining key terms like financial systems and markets. It then describes different types of financial markets including capital markets, money markets, commodity markets, and more. It also outlines various financial institutions like commercial banks, investment banks, insurance companies, and others. The document discusses how funds flow through the financial system directly and indirectly. It also touches on important concepts like asymmetric information, free rider problems, and how financial development relates to economic growth. Finally, it introduces Minsky's financial instability hypothesis and how periods of stability can lead to increased risk-taking and potential financial crises.
Determination of exchange rate chapter 6Nayan Vaghela
Determination of exchange rate, mint par theory, balance of payment theory, Purchasing power parity theory, Absolute version and relative version, Criticisms
Determination of exchange rate chapter 6Nayan Vaghela
Determination of exchange rate, mint par theory, balance of payment theory, Purchasing power parity theory, Absolute version and relative version, Criticisms
For Videos use the links below
0 Course Introduction:: https://www.youtube.com/watch?v=9km4aXTus5c
1 Financial system and Environment : https://www.youtube.com/watch?v=BC2bAftm43c
2 Participants in a Financial System: https://www.youtube.com/watch?v=IEv_y7_aR7o
3 Functions of a Financial System: https://www.youtube.com/watch?v=T73-Dd8RM4I
4 Financial System and its components: https://www.youtube.com/watch?v=ovkAjEO8YAw
5 Efficiency of a financial system: https://www.youtube.com/watch?v=8xEUtvKYvPc
Financial markets and their impact on economyShivkumar Menon
Financial Markets - This deck captures the movement of Money markets and Capital Markets, its impact on different stakeholders viz. Individuals, businesses, markets and the economy
This deck consists of total of seventy slides. It has PPT slides highlighting important topics of Investment Portfolio Management Power Point Presentation Slides . This deck comprises of amazing visuals with thoroughly researched content. Each template is well crafted and designed by our PowerPoint experts. Our designers have included all the necessary PowerPoint layouts in this deck. From icons to graphs, this PPT deck has it all. The best part is that these templates are easily customizable. Just click the DOWNLOAD button shown below. Edit the colour, text, font size, add or delete the content as per the requirement. Download this deck now and engage your audience with this ready made presentation.
Financial system and markets:
objectives of financial system-
Concepts of financial system-
Financial concepts-
Development of financial systems in India-
Weakness of Indian financial system
As an Investment Advisor, you will have to play an important role in enabling your clients to reach their financial goals without the emotions of fear or greed playing havoc. It is essential to understand Behavioural Finance, especially Heuristics and Biases that creep into financial decision making.
For Videos use the links below
0 Course Introduction:: https://www.youtube.com/watch?v=9km4aXTus5c
1 Financial system and Environment : https://www.youtube.com/watch?v=BC2bAftm43c
2 Participants in a Financial System: https://www.youtube.com/watch?v=IEv_y7_aR7o
3 Functions of a Financial System: https://www.youtube.com/watch?v=T73-Dd8RM4I
4 Financial System and its components: https://www.youtube.com/watch?v=ovkAjEO8YAw
5 Efficiency of a financial system: https://www.youtube.com/watch?v=8xEUtvKYvPc
Financial markets and their impact on economyShivkumar Menon
Financial Markets - This deck captures the movement of Money markets and Capital Markets, its impact on different stakeholders viz. Individuals, businesses, markets and the economy
This deck consists of total of seventy slides. It has PPT slides highlighting important topics of Investment Portfolio Management Power Point Presentation Slides . This deck comprises of amazing visuals with thoroughly researched content. Each template is well crafted and designed by our PowerPoint experts. Our designers have included all the necessary PowerPoint layouts in this deck. From icons to graphs, this PPT deck has it all. The best part is that these templates are easily customizable. Just click the DOWNLOAD button shown below. Edit the colour, text, font size, add or delete the content as per the requirement. Download this deck now and engage your audience with this ready made presentation.
Financial system and markets:
objectives of financial system-
Concepts of financial system-
Financial concepts-
Development of financial systems in India-
Weakness of Indian financial system
As an Investment Advisor, you will have to play an important role in enabling your clients to reach their financial goals without the emotions of fear or greed playing havoc. It is essential to understand Behavioural Finance, especially Heuristics and Biases that creep into financial decision making.
This PPT deals with the global capital market which is a network of financial institutions and markets where individuals, companies, and governments can raise and invest capital on an international scale.
Fiduciary or paper money is issued by the Central Bank on the basis of
computation of estimated demand for cash. Monetary policy guides the Central
Bank’s supply of money in order to achieve the objectives of price stability (or low
inflation rate), full employment, and growth in aggregate income.
Week-1 Into to Money and Bankingand Basic Overview of U.S. Fin.docxalanfhall8953
Week-1 Into to Money and Banking
and Basic Overview of U.S. Financial System
Money and Banking Econ 311
Instructor: Thomas L. Thomas
Financial markets transfer funds from people who have excess available funds to people who have a shortage.
They promote grater economic efficiency by channeling funds from people who do not have a productive use for them to those who do.
Well functioning financial markets are a key factor in producing economic growth, where as, poor functioning financial markets are a major reason many countries in the world remain poor.
Financial Markets
A security or financial instrument is a claim on the issuer’s future income or assets.
A bond is a debt security (IOU) that promises to make payments periodically for a specified period of time.
The bond market is especially important economic activity because it enables businesses and the government to borrow and finance their activities and because it is where interest rates are determined.
An interest rate is the cost of borrowing money or the price to rent (use someone else’s) funds.
Because different interest rates tend to move in unison, economist frequently lump interest rates together and refer to the “interest rate”.
Interest rates are important on a number of levels:
High interest rates retard borrowing
High interest rates induce saving.
Lower interest rates induce borrowing
Lower Interest rates retard saving
Information Asymmetry and Information costs
Why Financial Intermediaries
In the neo-classical world economists have argued financial intermediaries are not necessary. Savers (investors) could manage their risks through diversification.
The logic rests on the perfect market assumption – that is investors can always through their own borrowing and lending compose their portfolios as they see fit, without costs. In such a world there are no bankruptcy costs.
In such a world if taken to the extreme, perfect and complete markets imply that there is no need for financial institutions to intermediate in the financial (capital markets) as every investor (saver) has complete information and can contract with the market at the same terms as banks. E.g. Information Asymmetry
Why Financial Intermediaries Bonds
A common stock (usually called stock) represents a share of ownership in a corporation.
It is usually a security that is a claim on the earnings and assets of the corporation.
Issuing stock and selling it to the public (called a public offering) is a way for corporations to raise the funds to finance their activities.
The stock market is the most widely followed financial market in almost every country that has one – that is why it is generally called the market – here “Wall Street.”
The stock market is also an important factor in business investment decisions, because the price of shares affects the amount of funds that can be raised by selling newly issued stock to finance investment spending. (Note impact examples..
Similar to Introductory Finance for Economics (Lecture 10) (20)
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
NO1 Uk Divorce problem uk all amil baba in karachi,lahore,pakistan talaq ka m...Amil Baba Dawood bangali
Contact with Dawood Bhai Just call on +92322-6382012 and we'll help you. We'll solve all your problems within 12 to 24 hours and with 101% guarantee and with astrology systematic. If you want to take any personal or professional advice then also you can call us on +92322-6382012 , ONLINE LOVE PROBLEM & Other all types of Daily Life Problem's.Then CALL or WHATSAPP us on +92322-6382012 and Get all these problems solutions here by Amil Baba DAWOOD BANGALI
#vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore#blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #blackmagicforlove #blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #Amilbabainuk #amilbabainspain #amilbabaindubai #Amilbabainnorway #amilbabainkrachi #amilbabainlahore #amilbabaingujranwalan #amilbabainislamabad
NO1 Uk Black Magic Specialist Expert In Sahiwal, Okara, Hafizabad, Mandi Bah...Amil Baba Dawood bangali
Contact with Dawood Bhai Just call on +92322-6382012 and we'll help you. We'll solve all your problems within 12 to 24 hours and with 101% guarantee and with astrology systematic. If you want to take any personal or professional advice then also you can call us on +92322-6382012 , ONLINE LOVE PROBLEM & Other all types of Daily Life Problem's.Then CALL or WHATSAPP us on +92322-6382012 and Get all these problems solutions here by Amil Baba DAWOOD BANGALI
#vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore#blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #blackmagicforlove #blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #Amilbabainuk #amilbabainspain #amilbabaindubai #Amilbabainnorway #amilbabainkrachi #amilbabainlahore #amilbabaingujranwalan #amilbabainislamabad
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
how can I sell my pi coins for cash in a pi APPDOT TECH
You can't sell your pi coins in the pi network app. because it is not listed yet on any exchange.
The only way you can sell is by trading your pi coins with an investor (a person looking forward to hold massive amounts of pi coins before mainnet launch) .
You don't need to meet the investor directly all the trades are done with a pi vendor/merchant (a person that buys the pi coins from miners and resell it to investors)
I Will leave The telegram contact of my personal pi vendor, if you are finding a legitimate one.
@Pi_vendor_247
#pi network
#pi coins
#money
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
1. Lecture 10
Financial Markets
& Institutions
Introductory Finance for
Economics (ECN104)
Module Leader:
Farzad Javidanrad
Based on: Principle of Cooperate Finance by Brealey, Myers and Allen (2014)
(Spring 2013-2014)
Department of Economics
The University of Sheffield
2. Financial System & Financial Markets
• Financial system is a system that allows moneys to be transferred from the
individuals and companies with the surplus funds to those who have the
shortage of funds.
• The system can be defined at the global, regional or even specific firm level.
The regional financial systems is a set of banks and other financial
institutions, financial markets, financial services at a regional level.
• A healthy regional financial system directs funds to where that increase
productivity and promote economic stability and growth.
• At a global level, financial system comprises of the International Monetary
Fund (IMF), central banks, World Bank and major banks that work
internationally.
• Financial market is a market that money and financial securities (such as
stocks and bonds) and some commodities (such as some agricultural goods
and precious metals) are traded. Some financial markets are small in terms
of participants and number of transactions but some of them are very active
such as London Stock Exchange and New York Stock Exchange with over
trillion dollars trade in a day.
3. Financial Markets
• There are different types of financial markets:
1. Capital Markets; where money can be borrowed or lent for a long-period in
order to finance the projects of corporations through issuing bonds and
stocks. This market is subdivided to:
1.1 Bond Markets
1.2 Stock Markets
Each of them are subdivided to the Primary Market; where new issues are
first offered and the Secondary Market; where old issues are offered for
another trade.
2. Money Markets; where money is borrowed and
lent for a short-period of time (from several days up
to a year), mostly through interbanking lending.
Types of securities in this market are Certificates of
Deposits (CDs), government bonds,
commercial papers and etc.
Adopted from http://crackmba.com/financial-markets/
4. Financial Markets
3. Commodity Markets; where large amount of commodities such as gold,
silver, oil, wheat, coffee, sugar and etc. are being traded.
4. Insurance Markets; where buyers transfer risk of heavy loss to sellers in
exchange for payments.
5. Derivatives Markets; where financial instruments such as future contracts
and options are being traded.
6. Foreign Exchange Markets; where different currencies are exchanged. The
main participants of these markets are banks.
• Flow of funds through the financial system can happen in two ways:
a) Direct Finance: Funds move directly from lender/savers (investors) to
borrower/spenders via financial markets in exchange with financial
instruments (securities).
b) Indirect Finance: Funds moves first to the financial institutions (financial
intermediaries) and then lent to the borrowers.
Graph in the next slide help to visualise these relations.
5. Flow of Fund Through the Financial System
Financial
Institutions
Financial
Market
Lenders/Savers:
• Households
• Firms
• Governments
• Foreign Investors
Borrowers/Spenders:
• Households
• Firms
• Governments
• Foreign Borrowers
Indirect Finance
Direct Finance
6. Types of Financial Institutions
• There are six types of financial institutions (intermediaries):
I. Commercial banks
II. Investment banks
III. Insurance companies
IV. Pension funds
V. Mutual funds
VI. Hedge funds
Commercial banks accept deposits and offer loan to individual and
firms. They also serve as payment agents to facilitate the money
transfer between different individuals, companies and organisations.
Investment banks do not take deposits and usually do not serve the
general public. They help companies to raise money, for example, by
underwriting companies' stocks and distributing (or reselling) them
to potential investors in the market. They also advice companies on
takeovers (purchase of one company by another), mergers
(combination of two or more companies) and acquisitions (buying
most, if not all, of another company's ownership)
7. Types of Financial Institutions
Insurance companies make profit by insuring a large number of
people or companies at the same time. They are one of the
important sources of funds for corporations. They provide long-
term loans directly for companies through buying their bonds
and stocks.
Pension funds are one of the largest fund providers around the
world and designed for long-term investments. They have tax
advantageous meaning the returns of their investment are not
taxed before the final withdrawn.
Mutual funds are the professionally managed investment schemes
that raise money from different investors in order to invest in a
portfolio of securities. For many investors it is more efficient to buy
securities from a mutual fund than investing directly in individual
securities as these institutions try to find those stocks that generate
return better than the average returns.
8. Types of Financial Institutions
Hedge funds like mutual funds pool money
from different investors to invest on their
behalf but they do not serve the general
public but the big investors such as pension
funds or very rich individuals. They have
limited liabilities and require a very large
level of minimum investment. Adopted from www.fca.org.uk/static/documents/hedge-fund-survey.pdf
• Failing or closing a very large hedge fund may put the financial system in the risk of instability either
through drying out the credit channel or through selling the collaterals simultaneously (needed for hedge
funds transactions).
• “Hedge funds use leverage to increase the size of the positions taken in financial markets. In some cases,
the use of leverage allows them to become large enough to suggest they could impact the wider financial
system in certain situations. Hedge funds obtain leverage either by borrowing money or securities from
counterparties (known as financial leverage) or by using derivative instruments such as options, futures
or swaps. …. the largest proportion of total leverage used by hedge funds in the UK is acquired using
derivatives. Derivative transactions allow hedge funds to acquire market/economic exposures (which
this report refers to as the Gross Notional Exposure) that are many times bigger than the capital of the
fund: for example a hedge fund may pay or receive USD 1m to buy or sell an option with an underlying
market exposure of USD 100m.”(Financial Conduct Authority, March 2014, Hedge Fund Survey, p.4)
9. Asymmetric Information & Free-Rider Problem
• A healthy financial system must overcome two problems:
A. Asymmetric information: A situation in which one side (party) of a
transaction (for example, seller) has more or better information compared
to another (here; the buyer) and causes imbalance of power. Asymmetric
information leads to two problems:
A.1. Adverse selection (before a transaction is completed) arises because
the party who is most eager to engage in a transaction is the one most likely
to produce an undesirable (adverse) outcome for another party.
For example, in the health insurance
market, buyers with health problems have
an incentive to hide their health problems
in order to pay lower insurance premium.
So, at any level of premium, there are
some buyers who are willing to be covered
as they know the cost of treatment is
higher than the cost of premium.
Adopted from http://dutchhealthcare.wordpress.com/2011/01/26/adverse-selection/
10. Asymmetric Information & Free-Rider Problem
A.2. Moral hazard (after a transaction
is completed) arises when one party is
engaged in activities that are undesirable
from other party’s point of view. For
example, when financial institutions
are bailed out by the state (in order to
protect people’s deposits) some financial
institutions carelessly enter into some
risky investments.
B. Free-rider problem: A situation when a party is benefited from something
but does not pay the price of that. For example, an individual who can get a
profit from a stock trade without using any of his or
her own money (Arbitrage Opportunity). Another
example is the people who get benefited from the
defence budget but do not pay their taxes.
Adopted from http://www.michaelwdean.com/
Adoptedfromhttp://mcjags.com/Page/10126
11. Financial Development & Economic Growth
• Financial institutions are important as they theoretically
1. Promote economic growth through facilitating trade and capital movement
2. Provide credit for individual and firms
3. Identify creditworthy firms
4. Pool the risks of the individual entities
5. Mobilise savings to investment projects
6. Reallocating capital with a low transactions costs
• “The relationship between financial development and economic growth has
received great attention during the last few decades. Many economists
have emphasised the significance of financial sector development in the
process of economic growth, whereas other economists believe that this
importance is over-stressed. However, the debate is not new in the
economics development literature and can be traced back to Bagehot
(1873) and Hicks (1969) which argued that financial development was an
important channel in the industrialisation of England, by helping the
movement of large amounts of funds for “immense” works.”(Javidanrad, Causal Relationship
between Financial Development & Economic Growth, p. 11)
12. Financial Development & Economic Growth
• How much are they good practically?
• It is naive to think that the private financial institutions are committed to
boost the economic growth. “Private financial institutions do not lend money to
create jobs or to facilitate transactions in economy but to make a bigger profit. They
have great interest to expand their business [through lending] … in order to have a
bigger share of the cake” (Javidanrad, The Impact of the Size of Financial Sector on Real Sector, (2013), P. 1)
Adopted from http://www.toonpool.com/cartoons/Stock%20Markets%20fall_100913
13. Financialisation of the Economy
• “In a modern economy real sector activities are heavily reliant on the
financial sector services. Even in a simple transaction between individual
buyers and sellers financial institutions and their instruments, such as
debit/credit cards and overdraft facilities, play a central and imperative
role. Many financial instruments have been created and encouraged to be
accepted by households and firms just to enable financial institutions to
have a bigger share of capital in economy. Some economists, such as
Stockhammer (2012), use the term “financialisation” to indicate on this
dominance.” (Ibid, p. 2)
• “He argues that financialisation has changed the non-financial actors’
perceptions about themselves and their motives and has led to the shift of
power from labour to capital in one hand and from company to
lenders/shareholders on the other hand. The main outcome of this shift is
the firms’ concentration on profit growth, in order to make lenders and
shareholders more satisfied, while the reinvestment of the profit shows a
slow growth.”(Ibid, p. 2)
14. Growth of the Financial Sector
• The financial sector’s share of aggregate income, which reflects the concept of
financialisation, has had a rapid growth compare to the same in the real part
of the economy.
• Data collected from the Blue Book (2013) in the UK shows that the
percentage share of GDP (income approach) has increased for financial
corporations from 1.96% in 1999 to 2.55% in 2012 while the same percentage
share has dropped for the private non-financial corporations in the UK from
19% in 1999 to 16.56% in 2012. The picture is more evident when the 8.58%
average of yearly growth rate of the financial corporations in 14 years (1999-
2012) is compared with 3.03% average yearly growth rate of non-financial
corporations.
0
20
40
60
80
100
120
140
160
180
1990 1995 2000 2005 2010 2015
Percentage
Years
UK's Net Debt as a % of GDP
Source : ONS
Increasing the number of profitable
financial institutions has no meaning
just the expansion of debt because
with the expansion of credit and
increasing debt they can survive.
15. Financial Crisis & Minsky Moment
• Most macroeconomists work with "equilibrium models" meaning the
economy is moving from one stable situation to another stable situation. So,
instability occurs when there is an external shock such as a disaster, war,
dramatic rise in oil prices or even something good such as technological
changes.
• Minsky believed that the economic system could generate shocks through its
own internal dynamics. Through his theory of financial instability
hypothesis he explains the formation of instability during the periods of
economic stability (when firm’s cash flow is more than the total amount of
their debt) when agents become less rational in their activities.
• They assume that the good times will continue and begin to take greater risks
in order to increase their profit. Financial institutions and big corporations
start to increase their speculative activities. The root of the future crisis starts
from here.
• He defines three types of financing that firms could choose according to their
risk tolerance : Hedge Finance, Speculative Finance and Ponzi Finance. The
terms hedge, speculative, and Ponzi finance are used to indicate the relative
difficulties that economic units have in repaying their debt.
16. Financial Crisis & Minsky Theory
• He believes that the accumulation of debt is the major element that
leads an economy towards a crisis. Hedge borrowers will be able to
repay their debt and interest. With the rise of speculative financing,
speculative borrowers know that profits will not cover all their liabilities,
however, they believe that more investment leads to more profits and there
will be no problem.
• lenders also start thinking that they will get back all the money they have lent
or alternatively they can use their acquisition rights to own the firm/house.
Therefore, they are ready to lend to firms, households or even other financial
institutions (perhaps more short term with higher level of interest) without
full guarantees of success. Lenders know that such borrowers might have
problems repaying but they still believe their borrowers will refinance from
elsewhere and repayment will continue. This is Ponzi financing where the
economy has entered into a very risky and unstable situation. Now it is only
a question of time before default of borrowers happen in an industrial scale.
Lenders stop giving credit so easily, so the financial institutions return to
hedge finance.
17. Financial Crisis & Minsky Theory
Hedge Finance
Lenders and borrowers are cautious
Less lending / less borrowing
Speculative Finance
Assuming good situation & continuation of
that
Starting risky borrowing /lending
Ponzi Finance
Too much risky borrowing / lending
Soaring asset prices / Forming bubbles
Start of the bankruptcy