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Finance & Accounting
Pages 5 (1255 words)
Emerging Markets and Financial Regulation Name Course Instructor Institution Date Question 2 The actions of global investors such as Peter Monaco are determined by the expectation to make huge returns from their investments. Markets that are characterized by huge domestic consumption and limited trade barriers offer huge returns to such investors, as they are able to invest huge amounts of capital to finance various business enterprises (Romain & Tornell, 2011).
The effects of this crisis were huge, disrupting major financial systems both in the developed and developing countries, and affecting other economic activities. The best way to address the risks of economic contagion, currency and debt crises, and other dangers to global financial stability is through ensuring efficient market discipline. This is because market discipline offers rather strong incentives to banks to retain a strong capital base in order to protect against future losses (Atsem, 2010). As such, there are regulatory and legislative reforms that have been made in order to strengthen market discipline, especially in fighting the risk-taking behavior of banks. These reforms include the introduction of more flexible provisions for loan losses allowing forward-looking through-the-cycle approaches; tightening the rules concerned with the accounting of the off-balance sheet exposures, and the clarification on the use of fair value accounting for the various kinds of financial instruments (Stephanou, 2010). The merit of these reforms is controlled risk-taking behavior by financial a strengthened market discipline culture within the financial institutions and markets. ...
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