Question

detailed answers are required for each question

QUESTIONS

1)What is law of one price? Is it just a text book concept or does it hold in the real world?

2)Why do financial crisis occur? How can financial crisis be prevented?

3)What is insurance? What type of insurance is offered in Pakistan? List the insurance companies in Pakistan and discuss the services they provide.

Answer 1

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Explanation:

1.     The law of one price is a theory in economics that states that identical goods prices in different markets must be similar after considering the currency exchange. This law applies to assets sold in financial markets. However, several assumptions accompany the law of one price, such as free-market competitions, trade restrictions absence, and flexibility of prices. It holds because of arbitrage opportunities. If there is a divergence in the prices of identical goods in the markets, arbitrage opportunities occur because buyers can purchase a product at a lower price and sell it at a higher price at another market. This law does not hold in the real world unless competitive markets exist, transaction costs do not exist, and there are no trade barriers.

2.     Financial crises occur when the flow of information in financial markets is disrupted, resulting in credit spreads and financial frictions sharp increase, making financial markets stop functioning. Therefore, economic activities collapse. Financial crises can be prevented by focusing on bank cultures and governance. Managers must increase the capital required for depository institutions and shadow banks. Moreover, liquid requirements must be eliminated and develop a good structure for integrated regulatory (Crotty, 2009).

3.     Insurance is an arrangement a state or a company adopts to give a compensation guarantee for particular damage, loss, death, or illness for payment returns of a specific premium. It is a way of protection from injury in finances in uncertain times. Pakistan offers various types of insurance, depending on one's needs. They include life, social, fire, property, liability, and guarantee insurances (Malik, 2011).

Insurance companies in Pakistan

Jubilee life insurance. It offers individual life insurance, enabling its customers to save money for the education, marriage and medical care of their children

Offers micro insurance, online, family takaful, corporate insurance, and Bancassurance.

Adamjee insurance. It offers engineering insurance, agriculture, miscellaneous, financial lines insurance, personal accident insurance, travel insurance, and many others.

Alfalah insurance company. They provide property, motor, engineering, energy, marine, health, and miscellaneous insurances.

State life insurance Corporation of Pakistan. It offers whole life assurance, endowment, anticipated, and Shad Abad assurances.