Financial Theories And Strategies

Financial Theory and Strategy Introduction Financial theory is the cornerstone of today's business world. "The fundamental building blocks of monetary theory lay the foundation for many contemporary tools such as asset pricing and investment Many theoretical concepts such as general equilibrium analysis, information economics and contract theory are classical It is firmly rooted in microeconomics. "(Oak tree). 2005) In this article I will define five financial theories and explain the impact they will have on business decisions made by financial managers.

The financial crisis in 2008 revealed that there is a big gap in economists' understanding of financial intermediation. Mainstream economists have a very simple and stylized bank model that ignores the enormous number of financial products and strategies that have evolved over the past 50 years. They insist that they can answer questions concerning financial regulation, such as how to set capital requirements of banks, without clearly understanding how financial intermediaries create value.

Economists ignore the majority of financial products and strategies that have evolved since 1950 and have a bad perspective on the financial system. For example, repurchase agreements are central to the implementation of the cash security market and monetary policy. 40 years, but most economists do not know what "repo" is before the financial crisis in 2008 when Gary Gorton and Andrew Metrick explained its role. GDP, a major measure of economic performance of economists, is designed for a world where value exists in a computable form. Today, consumer demand can not be quantified, and even tangible goods and services are satisfied. Medical, educational, and fiscal accounts account for an increase in spending and employment, but we do not know how to measure production in these sectors. In addition, with services like Google Maps and Facebook, consumers do not have to pay, so we do not know how much they offer value.

Neo-liberal development theory appeared with the end of capitalist "Golden Age" in the 1970s. When the world economy fell into recession, the old strategy ceased to function, and neoliberalism claimed to provide a tool to overcome the financial crisis. The core of the theory is to assume that poor policy is rooted in a wide range of government intervention economics. Policies that ensure the competitiveness of the world economy can restore economic growth. Neo-liberal development theory promotes growth, creates free markets, replaces weakened proved Keynesianism, eliminates national intervention in the economy and brings poor economic performance in many countries (Harrison, 2005). Major international organizations such as the International Monetary Fund (IMF) and the World Bank adopt this approach to speed up the transition.