Question

Why might financial liberalization and globalization lead to financial crises in emerging market economies?

Why might financial liberalization and globalization lead to financial crises in emerging market economies?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Financial liberation and globalisation is the removal of restrictions on flow of capital. Capital is free to move in and out of the country.

The financial and security markets in the emerging countries is not well developed. There exists the problems of moral hazard and adverse selection. They do not have the expertise to screen between good and bad investments, and to monitor the projects for which money is lent.

The problems of adverse selection and moral hazard become worse as there is no restriction on financial market and domestic market cannot control the market. This might lead to financial crises in emerging market economies.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Why might emerging market economies want to implement financial liberalization and globalization gradually rather than all...
Why might emerging market economies want to implement financial liberalization and globalization gradually rather than all at once?
How might market liberalization contribute to reducing poverty in developing economies?
How might market liberalization contribute to reducing poverty in developing economies?
2. In the wake of the currency crises that afflicted several Asian economies, many open-economy macroeconomists...
2. In the wake of the currency crises that afflicted several Asian economies, many open-economy macroeconomists have expressed the view that emerging economies that have become highly integrated with world capital markets have to choose between floating rates or “hard” fixed exchange rate pegs, because “soft” pegs are too vulnerable to speculative attacks. Explain: a. Why the degree of capital mobility might affect the sustainability of “soft” currency pegs. b.    Why a “hard” peg might be more sustainable.
Why do economic downturns caused by banking or financial institutions crises lead to longer and deeper...
Why do economic downturns caused by banking or financial institutions crises lead to longer and deeper recessions than those caused by other sectors of the economy, such as decline in manufacturing?
a. Why do many emerging market economies prefer to adopt a fixed exchange rate, while developing...
a. Why do many emerging market economies prefer to adopt a fixed exchange rate, while developing countries fix their currencies? note: no plagrism
How can emerging market economies avoid the problems of currency mismatch?
How can emerging market economies avoid the problems of currency mismatch?
Discuss some of the characteristics of emerging economies. Why do they grow faster than more advanced...
Discuss some of the characteristics of emerging economies. Why do they grow faster than more advanced economies?
6. China, India, and other emerging market economies are exporting increasingly sophisticated goods to the United...
6. China, India, and other emerging market economies are exporting increasingly sophisticated goods to the United States. (By “sophisticated,” I mean their production processes are capital-intensive and/or human capital-intensive.) Explain how this phenomenon might be interpreted using Lerner diagrams. In your answer, indicate whether you think this phenomenon spells doom for the U.S. manufacturing sector.
After the global Financial Crises most of the economies implemented a fiscal and monetary policy mixes....
After the global Financial Crises most of the economies implemented a fiscal and monetary policy mixes. Think about the big contraction in output after the global financil crises. a) Write down the monetary policy reaction by the Central Bank. What would be the impact of this policy change on output and inflation using AS-AD model. b) Write down the fiscal policy reaction by the government. What would be the impact of this policy change on output and inflation using AS-AD...
Consider a struggling emerging-market economy where, in contrast to developed economies, the perceived risk associated with...
Consider a struggling emerging-market economy where, in contrast to developed economies, the perceived risk associated with holding sovereign bonds is affected by the state of the economy. Suppose vast quantities of valuable minerals were unexpectedly discovered on government-owned land. How might the government’s bond rating be affected? Using the model of demand and supply for bonds, what would you expect to happen to the bond yields of that country’s government bonds?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT