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"Investments Introduction" Please respond to the following: Propose three reforms to the investment markets that might...

  • "Investments Introduction" Please respond to the following:
  • Propose three reforms to the investment markets that might reduce their exposure to the process called securitization. Support your proposals with examples.
  • Determine two ways that capital allocational efficiency contributes to the well-being of an economy. Support your answers.
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Answer #1

Propose three reforms to the investment markets that might reduce their exposure to systematic risk. Support your proposals with examples.

1. Diversification: By diversifying you are avoid having a specific risk. For example, you can invest in different asset classes that have different reactions to interest rates.

2. Hedging: By hedging you can bet a little percentage against your bias to reduce your risk.

3. Insurance: An example of insurance are the Credit Default Swaps (CDS), you can buy insurance for you asset to avoid the risk of default.

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