Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 12, Problem 23PAA
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To know: The reason for compromising the market’s integrity and investors trust.
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Prosecutors representing the Securities and Exchange Commission recently announced criminal charges against 13 individuals for engaging in insider trading. According to the SEC’s director of enforcement, a trading ring acting on inside information “compromises the markets’ integrity and investors’ trust.” Explain why.
During the 2007-2009 period, the US government made its most dramatic interventions in financial markets since the 1930s. It has been argued that the current crisis could redraw the boundaries between government and markets. For some, “freer and more flexible markets will still do more for the world economy than the heavy hand of government” whereas for others “big banking crises are ultimately solved by early and decisive government action and financial regulation.” Evaluate these positions.
How BMW Dealt with Exchange Rate Risk BMW Group, owner of the BMW, Mini and Rolls-Royce brands, has been based in Munich since its founding in 1916. But by 2011, only 17 per cent of the cars it sold were bought in Germany. In recent years, China has become BMW's fastest-growing market, accounting for 14 per cent of BMW's global sales volume in 2011. India, Russia and Eastern Europe have also become key markets. The Challenge Despite rising sales revenues, BMW was conscious that its profits were often severely eroded by changes in exchange rates. The company's own calculations in its annual reports suggest that the negative effect of exchange rates totalled 2.4bn between 2005 and 2009. BMW did not want to pass on its exchange rate costs to consumers through price increases. Its rival Porsche had done this at the end of the 1980s in the US and sales had plunged. The Strategy BMW took a two-pronged approach to managing its foreign exchange exposure. One strategy was to use a "natural…
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Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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- The 1999 repeal of the Glass-Steagall Act by the US Government was a mistake as it allowed US banks to grow too big and take excessive risks leading to the subprime and global financial crises of 2007-2009. True or False? (Word limit 300)arrow_forwardCritically asses the contribution of the bonus culture, asymmetric information and risk taking to the financial crisis of 2008 . (approx 250 words)arrow_forwardThe Securities and Exchange Commission (SEC) is an independent agency whose function is to administer federal securities laws. True or Falsearrow_forward
- Why is there a need for companies like Standard and Poor’s and Moody’s to provide ratings (i.e. AAA, AA, B, etc.) on mortgage-backed securities? What problem do the ratings help solve? Group of answer choices -moral hazard -correlated risks -bank runs -adverse selectionarrow_forwardGive at least three examples of a situation in which financialmarkets allow consumers to better time their purchases.arrow_forwardWhich of the following is NOT usually a short-term discount security? Bank bills overnight cash Negotiable certificates of deposit Commercial paperarrow_forward
- Provide a real-world example of "Adverse Selection" in a business or financial transaction.arrow_forwardWhy do you think pawnshops are gaining momentum in the financial service industryarrow_forwardExplain the problems of adverse selection and moral hazard caused by asymmetricinformation. How can financial intermediaries alleviate those problems?(b) Explain the Diamond model of delegated monitoringarrow_forward
- Identify two (2) derivative investment products and how they allow investors to hedge against risk while creating unnecessary risk to the global economy.arrow_forwardIn what ways does the savings and loan scandal represent collusion between organized crime and legitimate commerce?arrow_forward“In a world without information costs and transactioncosts, financial intermediaries would not exist.” Is thisstatement true, false, or uncertain? Explain your answer.arrow_forward
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