Global Finance - Lecture 1

Question 1

Financial development is both a product and a cause of…..

Answer 1

Economic growth

Question 2

What are the 5 key variables driven by financial development to match buyers/sellers and lenders/borrowers?

Answer 2

1. Amount
2. Type
3. Space
4. Time
5. Price

Question 3

A greater degree of separation between lenders/borrowers and buyers/sellers leads to….

Answer 3

A more complex matching process - Financial development bridges this separation

Question 4

What are Bills of Exchange (Financial Instruments)?

Answer 4

Short-dated instruments that provided credit for business and trade

Question 5

What are Stocks/Shares (Financial Instruments)?

Answer 5

Stakes in a business sometimes called equity, owners of stocks owned the business

Question 6

What are Bonds (Financial Instruments)?

Answer 6

A loan to a business or government, the bondholder received a fixed rate of interest and the repayment of the bond at maturity

Question 7

What are derivatives (Financial Instruments)?

Answer 7

Options, Futures, Swaps - make/receive payment or make/accept delivery at a specified time and price

Question 8

What appeared in response to the separation of buyers/sellers and lenders/borrowers?

Answer 8

Financial Intermediaries

Question 9

What are some of the financial intermediaries that appeared?

Answer 9

.Banks - Most important
.Brokers - Agents acting for others
.Market makers/Dealers
.Asset Managers - Handled investments on behalf of investors

Question 10

How has financial regulation evolved over time?

Answer 10

.Past - Regulation of individual components of the financial system
.Recently - Regulation of national systems
.More recently - Regulation of global systems

Question 11

Who are gatekeepers (Financial Regulation)?

Answer 11

Those with authority to monitor and report on financial activity

Question 12

How was the Mediterranean sea a catalyst for financial innovation in 1500?

Answer 12

.Trade routes linked Asia, Africa and Europe
.Facilitated the spread of products, processes and techniques such as bills of exchange
.Led to banks and double entry bookkeeping

Question 13

How did the industrial revolution stimulate financial innovation?

Answer 13

.More productivity
.Faster labour
.Higher per capita incomes
.More investment

Question 14

How did the first world war affect global financial systems?

Answer 14

.Commercial, financial and monetary imbalances
.Imbalances led to the Wall street crash
.Governments forced to intervene to support national financial systems

Question 15

How did the second world war effect global financial systems?

Answer 15

.Government imposed controls over financial systems - Regulation - domestic and international
.Stock and commodity exchanges closed
.Governments retained control after the war

Question 16

How did the global governments control finance between 1950 and 1970?

Answer 16

.Imposed exchange and capital controls which restricted free financial systems
.Attempted to shape domestic systems by separating them into components
.Tried to encourage financial activity to by-pass the most highly regulated components

Question 17

In the 1970’s, governments removed regulation, what was its affect?

Answer 17

.Rapid financial development as banks responded to new opportunities
.Still imposed some regulation but not as much