If you invest in an "emerging market fund," your money is probably going to a commercial bank, rather than directly to nonfinancial businesses. Why? Why is that probably a good thing?
What will be an ideal response?
Developing economies are especially dependent on private lending by banks to overcome asymmetric information problems. Few businesses in developing economies can provide information of adequate quantity and quality to issue marketable securities. Banks have a profit incentive to compensate for the rudimentary state of accounting standards, enforcement of property rights, etc. Foreign investors share in the profits of competent bank intermediation.
You might also like to view...
Bauxite is used for making aluminum. Which of the following will happen if bauxite prices fall, assuming all else equal?
A) The labor demand curve of aluminum manufacturers will shift to the right. B) The labor demand curve of aluminum manufacturers will shift to the left. C) Aluminum manufacturers will move to a higher point along their labor demand curves. D) Aluminum manufacturers will move to a lower point along their labor demand curves.
A factor of production refers to any good or service that is:
A) produced by the government. B) produced in a competitive market. C) used to produce other goods and services. D) produced using scarce economic resources.