Q1. Read the article by Jennifer Moore “ What is Really Unethical About Insider Trading?” Do you think insider trading should be legalised? If so, why?
‘A highly developed and efficient financial system is essential to ongoing economic growth and prosperity.’ Discuss.
A financial system may be regarded as comprising three principle parts; financial institutions, markets, and financial assets. Financial institutions may perform the role of intermediary (e.g. banks), broker (e.g. investment bank) and agent (stockbroker). Markets provide an ordered and often regulated structure in which the creation, sale and transfer of financial assets may take place. Examples include the Australian Stock Exchange, the foreign exchange market, the Sydney Futures Exchange, and the short-term money market. Financial assets are the medium by which the value of financial transactions within the financial system is recognised (e.g. promissory notes, debentures, shares). It is generally recognised that a developed, or developing, economy requires a sophisticated and stable financial system to support future growth. Savings represents future potential for capital investment in productive units. A highly developed and efficient financial system will encourage savings as investors will have confidence to invest in the range of financial assets available. An investor will have a choice of investment opportunities with varying levels of risk, return (yield), liquidity and maturity. Within a stable financial system an investor will be confident of receipt of cash flows attached to an investment; interest payments and principal repayment. At the same time the financial system encourages economic development by providing various sources of funds to borrowers. The system facilitates the efficient allocation of resources to arguably the most productive users of the funds. This is achieved through the market pricing mechanism; that is, the cost of funds.
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