Asymmetric Information Article Example | Topics and Well Written Essays - 1000 words

Asymmetric Information - Article Example (investopedia.com) v. Interest Rate Swap - An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps often exchange a fixed payment for a floating payment that is'linked to an interest rate (most often the LIBOR). A company will typically use interest rate swaps to limit or manage exposure to fluctuations in interest rates, or to obtain a marginally lower interest rate than it would have been able to get without the swap. (Investopedia.com) 2. The general law of tradeable goods which says that the good will be sold at the same price regardless of where it is produced is called The Law of One Price. The law of one price says that goods will be sold at the same price whether it is produced in India or in U.S. The difference in their selling price will be reflected by the nominal exchange rate. In this respect, the nominal exchange rate will adjust so as one good can be bought at the same price using different currencies. 3. In mathematics, it will be shows as: 1/P = e/P* where P is the local price, P* is the foreign price and e is the nominal exhange rate. From this we see that equality will be manitaines if e adjusts to whatever the value of P and P*are. 3. Interest Rate Parity - A second principle, Interest Rate Parity, ties the interest rates of two nations with their exchange rates.' According to the Interest Rate Parity principle, the difference in similar nominal or market rates of interest should be equal to the forward premium of the nation with the lower inflation rate.' Otherwise arbitrage will occur, the profitability of which will cease only when interest rate parity once again prevails. (http://byrned.faculty.udmercy.edu/) As seen in the graph, an increase in the foreign interest rate will lessen the demand for domestic assets. Thus the demand curve shifts to the left. The shift of the demand curve to the left, causes a change in the equilibrium point. With the new equilibrium point, the returns from expected asset holdings declines and the exchange rate also declines. This means that the domestic currency weakens. Using the law of demand, we know that as the foreign interest rate (thus returns) increases, more will demand foreign currency instead of domestic currency. Thus it's value declines. 4. There are two problems that arise from asymmetric information: the adverse selction and the moral hazard problem. Adverse Selection - Adverse selection, anti-selection, or negative selection is a term used in economics, insurance, statistics, and risk management. It refers to a market process in which "bad" results occur when buyers and sellers have asymmetric information (i.e. access to different information): the "bad" products or customers are more likely to be selected. A bank that sets one price for all its checking account customers runs the risk of being adversely selected against by its low-balance, high-activity (and hence least profitable) customers. (Wikipedia.com) Moral hazard - Moral hazard is a special case of information asymmetry, a situation in which one party in a transaction has more information

What is meant by technological determinism Please evaluate Essay

Technological Determinism - Essay Example However, an understanding of technological determinism will be required in order to prove this argument. In addition, the analysis of various concepts of technological determinism will be required so that the role of technology in facilitating the modern social networks and communication can be achieved. The main question of the essay: Is it true that technology is the cause of the changes in the modern society in regards to the socialization process within online communities as argued by technological determinists?  Ã‚  In order to answer the above question, various journal sources of information on the topic will be used within the main essay. According to Hartman (2007), the definition of technological determinism and the meaning of this phrase go beyond faster computing and technological processes. This article is a credible material that will be used to achieve an accurate definition of the term technological determinism. Using this article the various concepts which relate to this phrase will also is described so that a basis for its analysis can be set. The theoretical framework surrounding technological determinism will also be analyzed within the main essay. This will involve an evaluation of opposing theories such as Moore’s law and Marxism in relation technological determinism so that different understanding of the role of technology in social change can be ascertained. In describing and analyzing the theoretical aspects which describe technological determinism, articles by Sherman (2008) and Ceruzzi (2007) will be referred to in the main essay. Sherman (2008) will allow an understanding of technological determinism from the Marxism point of view.   On the other hand, Ceruzzi (2007) in his article will enable a clear understanding of technological determinism in line with the advances in technology such as an increased computer processing speeds and its use within social networks.