Question

1)what financial innovations are best explained as attempts to avoid regulations? 2)what are the reasons for the decline of traditional banking?

2)what are the reasons for the decline of traditional banking?

Answer 1

1. Financial innovations such as crypto currency is an example to avoid regulations in financial system.

2. There are various reasons for crypto currency to gain attention and people moving away from traditional banking system in recent times, few of them are listed below:

a) Traditional currencies in few regions like Zimbabwe, Venezuela have been under hyperinflation and hence has been unstable. Such digital currencies which are not regulated by any government and is not linked to any other assets and hence being independent is something that attracts investors to crypto currency.

b) After 2007 crises, the government have reduced interest rate drastically, hence the yields on bonds are the lowest and prices of stocks are so inflated that the upside that exists now is very limited. Hence, such alternate investments provides investors, good avenues to diversify their holdings.

c) In some countries, the regulations might be restrictive for foreign inflow and outflow of home currency. In such countries, investors might get eluded to crypto currency on account of its universal acceptance and appeal.