Question

Other than business and households, what are the other two sectors of a closed economy?

Provide a short description of the size of the foreign exchange market (Forex/FX):

Explain how the repeal of the 1933 Glass-Steagall Act in 1999 with the Financial Services Modernization Act changed the marketplace. 16. Which segment of the market is the main net supplier of loanable funds?

IBM issues 1 million new shares by selling them to its underwriter; is this a primary or secondary market transaction? ______________

Answer 1

a. The other two business sectors of a closed economy other than Business and households are the government and the transactions with the rest of the world or the foreign sector. The transactions with the government means the payment & the collectio of the taxes, the umemployment compensations, the pension payments and the others. The transaction with ‘rest of the world’ involves import and export of goods and services, and new foreign investment thus making the economy as an open economy. The transactions with the rest of the world means the export and the import of the goods and the services and the brigning in the new investments.  

b. The size of the foreign exchange market is huge and thus is admirable.  The daily volume of the foreign exchnage trades was $5.1 trillion, vs. $84 billion for equities worldwide, according to the 2016 Triennial Central Bank Survey of FX and OTC derivatives markets it denotes that the foreign exchange marrkets have a huge markets iself.

c. In 1999 with the Financial Services Modernization Act has repealed the 1933 Glass-Steagall Act in and the changed the marketplace. The major change was w.r.t. the clause 20 of the Glass-Steagall Act which limited commercial banks activities with their assets thus allowing commercial banks to engage in investment banking and securities trading and also it removed the ban of simultaneous service by any officer, director, or employee of a securities firm as an officer, director, or employee of any member bank.

d. The household sector is the main supplier of the loanable funds. Loanable funds are the funds available for future which is earned by forgoing the current spending. The same is encourage if there is a sufficent rate of interest on the loanable funds. Thus the household sector is a major source of the loanable funds as they save more for future and it earns interest income to them.

e. It is a primary market transaction since the shares are been sold by the company to raise the funds. In case of the secondary market transaction the company does not raise any fund and the same is traded on the securities already issued by the investors.