Corporate finance Essay Example | Topics and Well Written Essays - 2000 words - 2

Corporate finance - Essay Example What is however important to note that these crises were largely unanticipated as they emerged due to the subprime mortgages which form a very little percentage of the overall activity that take place in the financial markets. This therefore raises the question of how many investors actually mispriced the risk that has to be included into the pricing of the securities given the fact that market participants always form rational expectations about the future equilibrium prices. Rational Expectations theory forms the basis of some of the most important macroeconomic models in recent times. The formation of the efficient market hypothesis is also one of the macroeconomic models which utilizes the rational expectations theory and assert that market participants always form rational expectations about the future equilibrium prices. Thus it is useless in predicting the future financial crises as the market participants already discount such future information into their risk calculations.(Hui & Lui, 2002). However, despite such theoretical assumptions, the current global financial crises were more of a shock for most of the participants as they emerged out of blue and affected almost every market on the earth. This paper will attempt to discuss the question of predicting the future financial crises in the light of efficient market hypothesis and rational expectations and will attempt to answer the question by considering the current global financial crises. The current financial crises has slowed down the pact of economic growth in many countries including US and UK and many governments have to inject money in order to save their financial systems from complete collapse. These financial crises apparently emerged due to the imprudent banking practices and resulting lending into the subprime mortgage sector. Over the period of time, the competition for banks became stronger and banks, thanks to de-regulation, were allowed to engage themselves into practices which

Process of Economic Integration in the World Today Essay

Process of Economic Integration in the World Today - Essay Example This paper presents a modern research report on different aspects of economic integration in the world today. The prime purpose involved in the process of economic integration process is reducing costs both for the producers and the consumers as well. The increasing levels of integration help in determining the competitiveness and allowing smooth movement of labour, cost and capital. It can be affirmed that the implementation of economic integration lessens the short-term profits due to the imposition of tariffs. Economic integration reduces the other trade barriers as well. It gives less power to the government of the member nations to make necessary adjustments that might deliver significant benefits to them. The process of economic integration in the context of E.U. generally includes four main features. One of the features is that economic integration reflects increase in intra-euro area trade at large. The second facet of economic integration can be identified to be making smooth and free flow of capital and also contributing towards developing the aspect of financial integration. The third feature of economic integration relating to its process is constituted by labour mobility. The other facet of economic integration in relation to its process can be viewed as synchronizing and coordinating different cyclical positions across the Euro areas It can be apparently observed but deeper economic integration is needed for the creation of developed economy in this increased level of globalisation along with internationalisation. ... These figures reflect the creation of strong Europe (European Central Bank, 2007). The second facet of economic integration can be identified to be making smooth and free flow of capital and also contributing towards developing the aspect of financial integration. Financial integration strengthens the economic mechanism, raises the competition and increases the potential for stronger economic growth. Along with economic integration, financial integration plays an imperative role in determining effective monetary policies and ensuring free along with effective transmission of single monetary policy. However, the actual need of financial integration is being observed in retail banking sector (EUbusiness Ltd, 2013). The third feature of economic integration relating to its process is constituted by labour mobility. As the labour market begins to tighten itself in developing economies, absence of openness may result in generating the risks of wage pressure. In most part of the European U nion, it can be viewed that cross border labour mobility is still limited, restricting in developing the economy by a certain degree through the emergence of regulatory barriers. The other facet of economic integration in relation to its process can be viewed as synchronizing and coordinating different cyclical positions across the Euro areas (Kuroiwa, 2012). Purposes of Economic Integration In order to determine the purposes of economic integration, it can be apparently observed that economic integration has increased among the countries in the European Union, but deeper integration is needed for the creation of developed economy in this increased level of globalisation along with internationalisation. In this similar context, the prime