Module 10 Flashcards
(25 cards)
Module 10A: Organizations (financial Risk) and government (poverty) learning objectives
Define DERIVATIVES and financial risk
Explain how derivatives can generate risk and reward
Describe the problem with regulation derivatives
DERIVATIVESimportant
A derivative is a financial product
-A derivative is a contract between two or more parties whose value is based on an agreed- upon underlying financial asset, index or security.
Common underlying instruments include: bonds, currencies, etc
Futures Contract
Contract between two or more parties where there is an agreed upon price for a transaction in the future.
-I will buy 100 barrels of oil from u for 5 dollars each in one year
Financial Risk
Risks that are generated by financial transactions
How are derivatives used
- Derivatives can be used a a hedge:
- I am an airline and I will use 10 million barrels of fuel a year. Enter future contract to purchase the fuel at a specified price in a specific time. I have hedged my exposure to fuel price risk
How can derivatives be used to speculate
They can be used to speculate: (create risk)
- I think that the S&P index is going to go down, how can I make many\ey on that
- I can enter a derivative contract where I “sell” the index at todays prices
- Then buy low
Many of these transactions re?
Unregulated
Why use derivatives
Legitimate hedging function- They are a risk management tool
- Amplify (leverage) returns (both good and bad)
- All about risk/reward
- Help make money mov faster
- Help make money work harder
What is the exposure in derivatives
NO ONE KNOWS HO WBUG IT IS
-QUADDRILLIONS
How they should regulate
- If u want to speculate, shouldn’t you be allowed
- Speculators often help markets work
- Can’t regulate them
Module 10B
Explain the cause of poverty
Describe the relationship between poverty and economics
Explain the roles of developed and less developed governments in addressing poverty
Outline 10B
- World Poverty and Economics
- Causes of poverty and requisites of Economic growth
- Can governments help
Poverty
Causes death
-Poor people die more often than risk. Same heath stats
Our Insatiable Wants
- Our wants and desires spur economic activity
- Needs: food, water, shelter, and clothing
- Wants: entertainment, communication, variety, brownies, unlimited ?
Our limited Means
- Resources are scares
- Technology
- Labor and Capital
Labor
Labor- how do we produce stuff, mental and physical contributions humans contribute in the production process
Capital
Capital-is all the nonhuman ingredients that go into production
Technology
Technology- The act of Labor and Capital being combined together to produce stuff
GDP
Measure our ability to produce stuff
- Primary measure of production
- Total value of production using market prices
- Doesn’t take into account ownership (Camry plant in Detroit)
- GDP as the economic pie
- Doesn’t tell us what is produced
Productions Possibilities
Every economy has a stock of resources (labor and capital) and technology to produce
- How they combine these things is virtually limitless
- If only two products, this could be represented on the PPC
- Food vs education
Real GDP
Adjust for inflation of prices
- are we producing more
Per Capita real GDP
Adjust of inflation and divisible by every person.
Lesser Developed countries
What causes poverty
- Quality of labor force (lack of education?)
- Stock of Capital/ Capital accumulation
- Technology
- Efficiency
- Population
*What does the gov do to help Less developed countries
Less Developed Countries
- Communism vs Capitalism
- Planned vs unplanned economy
- Involvement in education
- Infrastructure
- Attract FDI (Foreign direct investment
