Different Approaches in International Capital Market: Positive and Negative Characteristics
Abstract
This essay addresses two different approaches in international capital market by exploring positive and negative characteristics of each trend:
* Perfect capital market which is about economists’ idea of capital market; * Imperfect capital market which refers to modern capital market; * And, finally after above explorations and assessment of each strategy’ weaknesses/ strengths, it seeks to weigh/ compare both trends.
Introduction
Sion, A (2010) describes perfect (economists’) capital market as an intensively competitive market which works well and gives consumers good value for money.
Obstfeld, M and Talor A.M (2004) explains perfect (economists’) economic theory with the ability to lend or borrow which represent a loosing of constraints relative to those faced by perfectly closed economy.
He continues, “Economics view is reducing trade cost to zero and we would have single integrated market but with prices identical to autarky.”
Tugan-Baranowsky, M (2000) refers to (imperfect) modern capital market as a market with impossibility of a general overproduction within natural exchange, capitalist production and accumulation. He continues to emphasise this market as a market in which investors try to maximize profit and minimize risk for given amount of input.
Perfect (economists’) capital market
In(economics’) perfect capital market, T. Carlstrom, Timothy and Fuerst (2010) explain the existence of information movement and the fact that if entrepreneur’s financial position has a god idea for a new product or service she produces it regardless of personal financial opposition because outside investors well informed and readily perceiving an attractive profit opportunities. Therefore monetary policy needs not to respond to asset prices. A worthy production activity will be funded whatever entrepreneur finance may be. They also add in this environment, there is a welfare improving rule for monetary policy that responds
This essay addresses two different approaches in international capital market by exploring positive and negative characteristics of each trend:
* Perfect capital market which is about economists’ idea of capital market; * Imperfect capital market which refers to modern capital market; * And, finally after above explorations and assessment of each strategy’ weaknesses/ strengths, it seeks to weigh/ compare both trends.
Introduction
Sion, A (2010) describes perfect (economists’) capital market as an intensively competitive market which works well and gives consumers good value for money.
Obstfeld, M and Talor A.M (2004) explains perfect (economists’) economic theory with the ability to lend or borrow which represent a loosing of constraints relative to those faced by perfectly closed economy.
He continues, “Economics view is reducing trade cost to zero and we would have single integrated market but with prices identical to autarky.”
Tugan-Baranowsky, M (2000) refers to (imperfect) modern capital market as a market with impossibility of a general overproduction within natural exchange, capitalist production and accumulation. He continues to emphasise this market as a market in which investors try to maximize profit and minimize risk for given amount of input.
Perfect (economists’) capital market
In(economics’) perfect capital market, T. Carlstrom, Timothy and Fuerst (2010) explain the existence of information movement and the fact that if entrepreneur’s financial position has a god idea for a new product or service she produces it regardless of personal financial opposition because outside investors well informed and readily perceiving an attractive profit opportunities. Therefore monetary policy needs not to respond to asset prices. A worthy production activity will be funded whatever entrepreneur finance may be. They also add in this environment, there is a welfare improving rule for monetary policy that responds
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