Financial Economics Solutions
Chapter 1 Exercises Answers
1) What are the key roles of a financial centre and to what extent is London a different Financial centre than New York?
The key roles of a financial centre are to:
1) recycle funds from surplus agents to deficit agents
2) provide a range of financial services and securities to satisfy the needs of both deficit and surplus agents, households, companies and governments
3) ensure that funds flows from surplus to deficit countries
The key difference between London and New York is that the former is far more dependent on international business for its success since it is supported by a much smaller domestic economy. The New York financial centre is more domestically oriented in its business and is supported by the vastly greater United States economy.
The size of the US bond and equity exchanges is far greater than that of London on the other hand London is very big with respect to to foreign exchange, over the counter derivatives and
2) Discuss the pros and cons of the use of new technology in financial institutions.
Pros
1) New technology has enabled some markets such as the London Stock
Exchange to switch over to screen-based trading. Improved information systems mean the almost instantaneous transfer of price-sensitive information around the globe, and computers have enabled the industry to store and analyse masses of information.
2) Computers have enabled new complex products to be devised and priced in real time such as derivatives like options and credit default swaps.
3) .
Technology has also had a dramatic effect on the way banks conduct their business, process and dispense payments. Automatic telling machines
(ATMs) have reduced the need for cashiers and the increased use of debit cards has dramatically reduced the cost of processing payments eg: the marginal cost of making a transfer made by a debit card is less than 5 per cent of processing a cheque payment.
4) Technology has enabled retail banks to offer a wider range of
1) What are the key roles of a financial centre and to what extent is London a different Financial centre than New York?
The key roles of a financial centre are to:
1) recycle funds from surplus agents to deficit agents
2) provide a range of financial services and securities to satisfy the needs of both deficit and surplus agents, households, companies and governments
3) ensure that funds flows from surplus to deficit countries
The key difference between London and New York is that the former is far more dependent on international business for its success since it is supported by a much smaller domestic economy. The New York financial centre is more domestically oriented in its business and is supported by the vastly greater United States economy.
The size of the US bond and equity exchanges is far greater than that of London on the other hand London is very big with respect to to foreign exchange, over the counter derivatives and
2) Discuss the pros and cons of the use of new technology in financial institutions.
Pros
1) New technology has enabled some markets such as the London Stock
Exchange to switch over to screen-based trading. Improved information systems mean the almost instantaneous transfer of price-sensitive information around the globe, and computers have enabled the industry to store and analyse masses of information.
2) Computers have enabled new complex products to be devised and priced in real time such as derivatives like options and credit default swaps.
3) .
Technology has also had a dramatic effect on the way banks conduct their business, process and dispense payments. Automatic telling machines
(ATMs) have reduced the need for cashiers and the increased use of debit cards has dramatically reduced the cost of processing payments eg: the marginal cost of making a transfer made by a debit card is less than 5 per cent of processing a cheque payment.
4) Technology has enabled retail banks to offer a wider range of