Economist’s perspectives and suppositions on this issue are disparate. Considering the issue of the impacts of stock market on money related arrangement, the reaction of benefit costs to national bank approach is a key segment for breaking down the effect of fiscal strategy on the economy and due to their potential effect on the macro economy, stock market developments are prone to be a vital determinant of monetary policy decisions. Following the time when stock markets appeared on the planet, business analysts have been saddled with the laborious undertaking of making these money related go-betweens work productively and viably. This is on the grounds that stock costs are among the most nearly watched resource costs in the economy and are seen as being very delicate to financial conditions. The level of the share trading system is a key variable which shows the beat of monetary movement in a nation and together with different variables, for example, the genuine Gross Domestic Product, the unemployment rate, the expansion rate, the loan fee and the conversion standard give an outline of the macro economy.
The main findings are that the banks, who have raised funds when their market valuations were high, have lower current leverage ratio. This confirms Baker and Wurgler (2002) results that the historical market valuation has a large, negative and persistent impact on bank’s capital structure. The effect of past market valuation is stronger than the effect of current investment opportunities, which is measured by the market-to-book ratio. The results are inconsistent with the traditional capital structure theories, but provide support for the market timing
This study attempts to link psychological research, empirical evidence, and asset-pricing theory to examine how investor sentiment affects financial market volatility. We provide insight into that question by exploring different parameter configurations using the general equilibrium model of Lucas . The Lucas model is the most influential asset-pricing model and has been of central importance to modern macroeconomics. Traditional economic analyses are based on the efficient markets hypothesis (EMH), which assumes that people price assets by measuring probability and using all available information, and hence leave little room for investor sentiment. As behavior is motivated by both thoughts and feelings, considering investor sentiment
Dissecting a Bank’s Balance Sheet In this essay we would investigate the balance sheet of XY Bank and try to find out how a bank’s balance sheet is different from that of a company. We would also describe why bank managers prefer loans over securities and whether 4% cash reserves of the bank are adequate for its capital-adequacy management. Why Banks’ Balance Sheet differ from that of a Typical Company First, let us discuss why and how a bank’s balance sheet is different from that of a company. For that we would have to look at the underlying business models of a typical bank and a typical company. A bank’s sole purpose is to earn optimized profits by leveraging the interest rate spreads on the assets it owns against the liabilities it owes.
They explain the heterogeneity across states in the current house prices by the different exposures to national shocks. They find significant regional difference in the response of house price to monetary policy measured by Federal Funds rate but monetary policy shocks are small relative to the size of recent price boom in their study. Allen and Carletti (2010) find that interest rates can be used as an
Swan (1956) Solow 's model fitted available data on US economic growth with some success. In 1987 Solow was awarded the Nobel Prize in Economics for his work. Today, economists use Solow 's sources-of-growth accounting to estimate the separate effects on economic growth of technological change, capital, and labor (Nawaz, 2006). 2.1.2 Assumptions The key assumption of the neoclassical growth model is that capital is subject to diminishing returns in a closed
Quantitative easing can be classed as a monetary policy that is used as an extension of the cash supply to buy assets. In other words, Quantitative easing assigns a utilization of monetary policy that is exercised in the smooth transitioning of the economy. Usually, the central banks provide a back up support to banking sector post any crisis, to ease pressure by pumping money into markets, which helps the banking sector to try and maintain the lending level. Central banks are normally responsible for keeping the inflation rates and bank rates under the target range as set by the governments, considering the economic conditions that would encourage the economy by an increase in spending. Quantitative easing usually involves a structure where
1 the theoretical framework of financial determinants and market capitalization shown, where dependent variable is market capitalization and independent variables are financial performance. To find the relationship between financial performance/determinants and market capitalization or share price many researchers has performed study. The results of the studies done earlier shows that financial performance has positive and negative both effect on market capitalization or share price of the firm. Results of some of the relevant studies are done below to identify the gap and prove the
Due to poor portfolio mangement, depositors may lose their money. They rely on liquidity and confidence. If people lose confidence in the banking system, there may be a massive widespread withdrawals by depositors, but the bank won’t have sufficient liquidity because they can’t recall all their long-term loans. Though for such a crisis, a government may bail it out through the use of arms such as its Central Bank. Banks still have a strong comparative advantage in lending to individuals and small businesses.
Gradual liberalization and globalization of the economy, strengthening and development of the financial system, restrictions on the automatic monetization of fiscal deficit and various other changes in the economy had made it possible for the RBI to operate with the indirect instruments of monetary policy such as bank rate, repo rate and OMOs (open market operations). Accordingly, there has been a distinct shift in the monetary policy framework and operating procedures from direct instruments of monetary control to market based indirect instruments in the recent years. The thrust has been to provide the market mechanism a greater role in the economy, to provide the banks more operational flexibility and to bring