Question

Does the complexity of the financial sector make a recession more likely or does it help spread risk? Is the US financial sector still dominant or is it being challenged by other countries?  Describe the current strength of the Chinese financial system?

Answer 1

Part 1:

Financial sectors across globe have evolved into a complex form due to advent if technology and evolution of financial products. However, finance key personnel strive to make the system has simpler as possible because complexity may result in chain reaction of failures.

Best example of failure due to complex financial system is the Sub-prime crisis of 2008. The advent of complex products like Credit Default Swaps (CDS) and Collateralized Debt Obligations (CDO) lead a ripple effect across the system when the failure or default began as they linked plethora of participants across globe. The products were inherently developed as complex financial structures of debt.

Part 2:

Till date US Financial sector is still dominant but few Emerging economies are coming into limelight due to their efficiency and effective functioning of economy and financial system. China being the second major economy does have a good financial system but the government intervention is still relatively high. However, Singapore has a commendable financial environment which has developed really well in recent years.

Part 3:

Current strength of Chinese financial system is the growing financial system participants which facilitates the growth overall. The increasing number of earning individual has increased the participation in the financial markets.