5 functions of finance (films)
forward markets insurance lending market for equities saving
problems with financial markets (maman)
moral hazard asset bubbles market rigging (collusion) asymmetric information negative externalities
how does speculation affect exchange rates
if believed that pound will fall, sell pounds
as supply of pounds goes up, value does indeed fall
how does economic growth affect exchange rates
pound goes up because markets expect interest rates to rise (and then hot money is in play)
three ways of regulating the financial system
- setting a liquidity ratio (ratio of short term assets that can be used to pay SR debt)
- risk management e.g. PRA
- transparency
three ways of regulating the financial system
- setting a liquidity ratio (ratio of short term assets that can be used to pay SR debt)
- risk management e.g. PRA
- transparency
Unemployment trap
occurs when an individual is little better off getting a job than staying unemployed, and is a major disincentive to find work
Earning trap
Earning trap occurs when a low income working individual or household earns more
but the net gain is little or negative
(bc of taxes)
problem with deregulation?
‘creaming’ of markets –>firms only provide services in most profitable areas of the market