Discussion Responses

Discussion 1 responses

a.) Jayne

Explain the link between well-performing financial markets and economic growth.

The link between well-performing financial markets and economic growth is best explained by defining the function of a financial market. A financial market is designed (Mishki, 2019) to provide money to people who lack sufficient funds from people with no immediate need for their excess. Therefore, a well-performing market acts as a supply chain to financial intermediaries to use bonds and saving from others to loan to people needing additional funds to make large purchases. Pg. 4

Name one channel through which financial markets might affect economic growth and poverty.

One channel through which the financial market might affect economic growth and poverty is (Mishkin, 2019) when the market’s performance constantly fluctuates, affecting the price of shares and the amount of people’s wealth, which lessens their desire to spend. In addition, high stock prices produce an increased amount of funds used to buy equipment and manufacturing facilities. pg. 4

References:

Mishkin, F. (2019). The economics of money, banking, and financial markets (5th ed.). Pearson. ISBN: 978-0134734200

b.) Eric

When discussing economic growth, one can genuinely say that supply and demand are the main functions of the economy. Nevertheless, a smooth operating financial market can contribute to the health and efficiency of the economy. The financial markets help direct the flow of investments and savings in the economy to ameliorate capital accumulation and production of goods and services (Musmeci, Aste, & Matteo, 2015). As the financial market grows, it generates more jobs and government funding bonds and bills. With globalization and environmental change, financial markets can affect economic growth and poverty. For example, when the COVID-19 pandemic struck us, it severely affected the economy and financial markets. Financial markets plummeted, which caused people to cash out their investments because of the rise in unemployment and reductions in income. Financial markets will continue to be volatile when an unfolding crisis impacts the global economy.

Musmeci, N., Aste, T., & Di Matteo, T. (2015). Relation between Financial Market Structure and the Real Economy: Comparison between Clustering Methods. PLoS ONE, 10(3), 1–24. https://doi-org.belhaven.idm.oclc.org/10.1371/jour…

Discussion 2 responses

a.)Deborah

Asymmetric information is when one party in a transaction is in possession of more information than the other (Bloomenthal, Andrew). Competing interests may lead a financial institution to withhold information or announce wrong information. This stops its financial markets from carrying funds into the most profitable investment opportunities. Conflict of interest happens when the individual or institution has a lot of policies. This makes the asymmetric information bad for the reason that the competing interest provides enticement for the individual or institution to withhold the wrong information.

Reference:

Bloomenthal, Andrew. January 19, 2021. Investopedia. “What is Asymmetric Information?”

References:

Mishkin, F. (2019). The economics of money, banking, and financial markets (5th ed.). Pearson. ISBN: 978-0134734200

b.) Eric

Most of us have heard the old saying, “It is whom you know, not what you know.” Believe it or not, this falls under the conflict of interest. A conflict of interest occurs when an individual’s personal interest could comprise their judgment, actions, or decisions in a situation to make a personal gain (Deevski, 2019). On the other hand, asymmetric information (information failure) occurs when one party possesses more excellent knowledge than the other. For example, if a person wanted to sell their car, they would have more information than the buyer. When one combines conflict of interest and asymmetric information in a business, one can rest assured that any information given will be misleading. This will prevent a company from making the best investment opportunities.

Deevski, S. (2019). Management of Operational Risk Costs: Dealing with Conflicts of Interests and Sensitive Client Situations in Audit Firms. Trakia Journal of Sciences, 17(Supplement 1), 504–510. https://doi-org.belhaven.idm.oclc.org/10.15547/tjs…

Discussion 3 Responses

a.) Kimberly

“A discount bond is a bond that is bought at a price below its face value, and the face value is repaid at a maturity date” (Mishkin.2019) A discount bond will have a negative nominal interest rate, which is when the depositor essentially pays a bank to hold the depositor’s money when the actual bond price is more significant than its face value. Yes, a coupon bond can have a negative nominal interest rate because as long as the coupon payment and face value are low compared to the current price and with perpetuity it is impossible to have a negative nominal interest rate. After all, the coupon payment or the price either would have to be negative. Further research would have to be completed to keep the rates in a manner that will benefit all that are involved with the discount bond and coupon bond.

Reference

Mishkin, F. (2019). The economics of money, banking, and financial markets (5th ed).

b.) Michael

Although rare, it is possible for a discount bond to have a negative nominal interest rate (Mishkin, 2019). In this situation a person would pay more for a bond today than the amount they receive for the bond at maturity. This can happen when inflation rates are low and there are very limited investment opportunities. While it seems logical that institutions would prefer to convert their funds to cash, which earns zero interest, rather than invest in bonds paying negative interest, it is more convenient and secure for them to retain their funds in the electronic bond vehicles than convert to cash.

As long as a coupon bond or perpetuity is paying interest to the bondholder the nominal interest rate cannot be negative. However, in crisis conditions, it is possible for a coupon bond to have a negative nominal interest rate if an investor believed it was more secure to buy the bond and pay a small amount of interest than convert funds to cash or other investment vehicles.

Mishkin, F. S. (2019). The economics of money, banking, and financial markets (5th ed.). Pearson.

Discussion 4 Responses

a.) Tomeka

How do the shared passages and Scriptures define and interpret usury, debt, and applying/charging interest charges in the business and individual markets?

Usury is the act of lending money at an interest rate that is considered unreasonably high or higher than the rate permitted by law (Johnson, 2021). The usury act is practiced more and more today via companies competing to pursue the next vulnerable person. It is hard to believe the number of credit card and personal loan offers received by mail each week in addition to the discount offers received via emails and text messages. Companies will sometimes offer a better percentage for their cardmembers trying to persuade others to apply for their high-interest store brand cards. This method is used to get more vulnerable shoppers in debt while making money. The following biblical verses tell us about the act of usury and debt. In the following chapters,

Exodus 22:25 “If you lend money to any of my people with you who is poor, you shall not be like a moneylender to him, and you shall not exact interest from him.”
Deuteronomy 23:19 “You shall not charge interest on loans to your brother, interest on money, interest on food, interest on anything that is lent for interest.”
Proverbs 22:7 “The rich rule over the poor, and the borrower is a slave to the lender” (English Standard Version).
Additionally, how do postmodernism and secular society compare to the same? Postmodernism stresses that our ideas are embedded within a historical-cultural background or beliefs. Therefore, we can never remove ourselves from it by pure reflection. In the secular society, humanism believes what is right instead of doing what the bible tells us to do.

Reference

Johnson, J. (2021, August 12). What is usury? The Balance. https://www.thebalance.com/what-is-usury-5197338 (Links to an external site.)

What does the Bible say about usury? (n.d.). OpenBible.info. https://www.openbible.info/topics/usury

b.) Kimberly

Deuteronomy 23:19-20 states “Do not charge a fellow Israelite interest, whether on money or food or anything else that may earn interest. You may charge a foreigner interest, but not a fellow Israelite, so that the Lord your God may bless you in everything you put your hand to in the land you are entering to possess.” This passage is explaining how you are to charge and dismiss debt. The other readings explain that you are not to keep a debt hanging over your neighbor but are allowed to charge a stranger. It also explains that we have to be righteous in doing so to be blessed by God. Postmodernism and secular society in comparison to debt regardless of whom it may be is not the same with discharging debt but mostly in a secular society, debt is debt and must be repaid regardless of the person or entity.

Reference

The Holy Bible

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