Question

1. Discuss the stability/instability of the financial system. Include:
   1. Four common elements in modern U.S. banking crises (class notes).
   2. Shadow banking system and too big to fail doctrine.
   3. Historic frequency of financial crises.
   4. Your opinion on how to best management the financial system.
   5. Negative externalities associated with the financial system.

Answer 1

Q1: The four common element of Modern U.S banking crises are as follows:

     a: Fluctuation in International credit and capital flows leads to banking operation hazarda.

     b; Global imbalance in economic growth that can impact on banking sector.

     c: deficiency and structural problems in banking daya to day operation.   

     d: Currency risk is main element in the emergence and developement of banking crises.

Q2: Shadow Banking sytem:The shadow banking sytem is the term for collection non banking financial intermediaries that provide services similar to general commercial banks. It is a group of financial institution of non depository banks, i.e nbfcs, money market funds,investment banks etc.It is a too big in size that likje umbrella shape of various banking activities with less regulatory as compare to commercial banks that have risk of failure which will affect economy in a big size.

Q3: Historic frequency of financial crises: It simply implies that how often in the past finacial crises occuerred. It can well said that historic crises occurred in every 5 to 6 years.This type of financial crises started since 1982 to 2007 -08 world financial crises.

Q4: How to best manage Financial System:

Financial system is the back bone of any country's economy. In oreder to manage efficiently we should install well structured financial stystem that should be well technology based like SAP Erp software. which are free from error can do financial work simply by decreasing manual effort.On eterm CAAT computer assisted audit technology is tool which can check audit work very easily in large companies. so like these and manual coordination is required to support this system.

Q5: Negative externalities associated with the financial system.

It is termed as there is no external third party related to the transaction occuerred between two parties. it means when there is a financial transaction occures between two parties, that must not be seen to other party. This type of extrernalities in fiancial market are large in area of bailout operation and banking activities that can lead to crises.