6. What is the role of securities firms, such as hedge funds, in the process of
ID: 2730220 • Letter: 6
Question
6. What is the role of securities firms, such as hedge funds, in the process of financial intermediation? How serious a threat do the international activities of mostly unregulated hedge funds pose to financial stability?
7. What different considerations on the part of investors drive foreign direct investments (FDI) as opposed to portfolio investments? What is the impact of FDI and multinational corporations on host countries? Do you agree that a compelling need for international regulation of FDI and the activities of multinational corporations exists? Why or why not? What is the role of bilateral investment treaties in regulating FDI? What has prevented the creation of comprehensive rules to regulate FDI?
8. In what ways are the issues raised by sovereign wealth funds and multinational corporations similar and in what ways are they different? Do you believe that sovereign wealth funds are likely to emerge as a significant threat to national security in the future?
9. Do you believe that the global economy is characterized by races to the bottom? If we assume that races to the bottom do occur, what steps should governments take to prevent them?
10. Examine the institutional arrangements and the major steps in the development of European Union-level financial regulation. How have the EU members and institutions shaped EU financial regulatory reforms?
11. The 2007-2009 global financial crisis has provoked a discussion about creating more effective global financial governance. What are potential impediments to the meaningful domestic and international regulatory reforms after the crisis? Discuss the post-2008 global and regional regulatory regimes
Explanation / Answer
7.
Foreign direct investment has always carried a lot of controversies when it is discussed in the international economics world. It is basically an investment by an investor from a foreign country for which the foreign investor has control over the company purchased. It can be done by the MNCs or the MNEs. It can be done in the ways of Greenfield investment, acquisition or brownfield investment. FDI proves to be beneficial to the investee country in enumber of ways. But it carries along with it a lot of risks. Few can be defined as follows:-
But the country’s risk variables and the trade restrictiveness index may be affected by the future flows of FDI. Thus we can conclude that FDI can be beneficial to the investor country as well as the investee country provided that it is made considering all the risk factors.
9.
Digital Divide refers to the gap between people with effective access to digital and information technology and those with very limited or no access at all. It can also refer to the skills people have – the divide between peoples who are at ease using technology to access and analyze information and those who are not.
Globalization describes the process by which regional economies, societies, and cultures have become integrated through a global network of communication, transportation, and trade.
The term digital divide was not even present in our lexicon just two decades ago, but with the popularity of the Internet and the influx of technology, the term has become omnipotent in today's jargon.
In New York City, a whopping 98% of residents have cable service available to them. Yet only about 46% of the city's households subscribe to the broadband Internet that cable can provide. The cost of being hooked up to broadband simply is too high for many low-income New York residents. A 2006 American Community Survey indicated that in New York City, a mere 26% of low-income households had the high speed service at home, compared to the 54% of moderate-to-high income households -- indication of a very clear "digital divide."
The digital divide separates the information rich and the information poor. The Organization for Economic Co-operation and Development defines the digital divide as the difference between individuals, households, businesses and geographic areas with regard to (a) their opportunities to access ICTs and (b) their use of the Internet for a wide variety of activities. It is the gap between those who have real access to information and communications technology and who are able to use it effectively, and those who don’t have such access.
Lack of access to ICT goods and services poses social and economic disadvantages. More and more, developing countries are recognizing that they cannot compete in the new global market unless they take advantage of the ICT revolution. Countries that do not undertake measures to enhance their ICT infrastructure risk not just being marginalized but also being completely bypassed in the new global order. The experience of a number of countries, like Singapore, Malaysia and Korea, demonstrate that bold actions in bringing their countries into the digital age pay off.
The digital divide is the gap between those countries that receive information by making effective use of computers and other forms of information technology, and those countries that do not socially or economically profit from technological advancements, such as worldwide communication via the web or e-commerce.
Bridging the Digital Divide
Developing countries and successful, industrialized nations can both benefit economically and socially from the Internet expanding and increased worldwide usage of the net. The Internet acts as a gateway that links millions of people use to communicate ideas and act as potential buyers and sellers in a global economy. The Internet has created a worldwide forum for dialogue and has generated a revolution of innovation and entrepreneurship through E-commerce.
Effects of Establishing Equality and Bridging the Gap
Effects of Maintaining the Current Level of Inequality
11.Both the Great Depression and the 2007–2009 crisis were preceded bysharp increases in asset prices. During the two episodes, credit spreads widened, theavailability of credit shrank, and economic activity sharply declined. The two episodes differin the source of asset price increases: During the Great Depression, rising stock prices werethe trigger, whereas in the recent crisis a housing bubble was the primary trigger. During theGreat Depression, many bank failures lead to a bank panic, causing more banks to fail.During the recent crisis, even though the banking system was hit hard and bank failures didoccur, they were much less pronounced, and no bank panic occurred. Finally, although bothepisodes resulted in significant declines in GDP and increases in unemployment, this wasmuch more pronounced during the Great Depression, when unemployment peaked at 25%(as opposed to the recent crisis, in which the unemployment rate reached 10.2%).In part, this is the result of Federal Reserve policymakers trying much more aggressively tocontain the financial crisis and reverse the decline in economic activity during the recentcrisis than was true during the Great Depression.
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