Question

topic: Financial markets: efficient and other.

1. 1. How are financial firms able to make profits? Under what circumstances are their profits limited?
2. 2. What has happened to the profitability of financial firms in the US economy in recent decades? Why have they been able to increase their profits? Is this a good thing for the US economy as a whole?

Answer 1

A. Financial firms are able to make profit through better management of their resources. when financial firms deploy their resources in efficient and effective way and when the macro as well as the micro factors supports them it leads to generation of revenues beating cost of capital thereby resulting into overall profit for the firm.

Their profits are limited when the economy is in a downturn and there is lack of demand from the consumers and there is lack of supply chain management, then there is limitation in growth of the company leading to limitation of profit. The profits are also limited because of firm specific factors.

B.in the past decade the profitability of American companies has gone up because of better management of resources by the companies as well as the growth of the American economy. The market factors as well as firm-specific factors plays an important role in overall growth of a particular company for a longer period of time.

They have been able to increase their profits because government has been very supportive through providing adequate stimulus to boost overall demand so that that supply could increase to meet the overall demand in the economy leading to to Greater amount of market share as well as profit.

yes it is a good thing for American economy because it led to overall generation of employment and generation of gross domestic product.