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39 votes
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Are there historical cases of country A printing the currency of country B for the main purpose of economic warfare?

Very obscure historical example: From 1287 to 1295, the Danish nobleman Stig Andersen Hvide was leading a band of outlaws from the island of Hjelm supported by the king of Norway against the king of ...
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37 votes
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Why do celebrities get high wages?

If you ask yourself how much a potential employer would have to pay you to convince you to work for him, the answer is probably something like "at least as much as I could earn by doing the same job ...
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29 votes

Are there historical cases of country A printing the currency of country B for the main purpose of economic warfare?

https://en.wikipedia.org/wiki/Operation_Bernhard (an exercise by Nazi Germany to forge British bank notes. The initial plan was to drop the notes over Britain to bring about a collapse of the British ...
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18 votes

Why do celebrities get high wages?

I suggest to learn more about the Economics of Superstars. Within the economics field, the "superstar" term is "...used to refer to extreme wage outliers (Adler, 1985; Rosen, 1981). These outliers are ...
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  • 332
13 votes

Are there historical cases of country A printing the currency of country B for the main purpose of economic warfare?

David Petruccelli writes in "Banknotes from the Underground: Counterfeiting and the International Order in Interwar Europe" In December 1925, a group of Hungarian nationalists were caught ...
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12 votes
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Does Inflation Make Money Eventually Worthless?

"Worth less" than before - yes, that's exactly what inflation does. "Worthless" - not quite. No percentage-based reduction in value can make something worth 0, but there are extreme examples from ...
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9 votes

What assurances are there that the Federal Reserve does not give money to banks?

According to this official link Does the Federal Reserve ever get audited? Yes, the Board of Governors, the 12 Federal Reserve Banks, and the Federal Reserve System as a whole are all subject to ...
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9 votes
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Has anybody seen anything this expression before?

$p\cdot z(p)$ is total revenue (price times quantity), and so its derivative $\frac{\mathrm d}{\mathrm dp}pz(p)=pz'(p)+z(p)$ is marginal revenue.
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8 votes

How could Greece-related worries drive US stocks down about 2% in a day?

Because Greece sets a precedent for Italy, Spain and Portugal (and others). And a default of Italy (and Greece) might will cause financial difficulties in France. If the interest rates for Italy ...
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8 votes
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Why does Russian ruble conversion rate to USD remains constant at 1 to 0.01?

Currently there are quite a few restrictions on US to Russia bank operations. The answer is that Google Finance gets its data for the exchange rates from a specific service, Morningstar, who are ...
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7 votes
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Foundational equations or concepts of Finance

Considering this is an Economics Stack Exchange site, I’m going to answer in the spectre of Financial Economics. These are the most foundational equations and ideas of Financial Economics to ...
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7 votes
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What is the equation $\mathbb{E}[mR]=1$?

This is an important result in financial economics (asset pricing) but not trivial to explain intuitively. I do my best to give you the big picture and get you started on your research. R is the ...
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7 votes

Prove that variance of a portfolio cannot exceed variance of individual assets

Let $P = \alpha A + (1-\alpha) B$ where $A$ and $B$ are returns (random) from the two assets, and $P$ is their portfolio. Variance of portfolio $P$ can therefore be written as \begin{eqnarray*} \...
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6 votes

Unintended consequences from "fixing" the US financial system

1) Would lead to the return of general panic led bank runs, and introduce additional instability to the system. It´s not generally appreciated, that 19th century bank runs were not just a symptom of ...
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6 votes
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Examples of Factors in the ICAPM

ICAPM Factors People have chosen different ways to pick factors. Chen, Roll and Ross are a classic example of attempts to find reasonable ICAPM factors. Fama-French factors are often explained as ...
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6 votes

What possible reasons could make arbitrage impossible between some markets?

The seminal paper in this area with over 3,000 citations is by Shleifer and Vishney: Textbook arbitrage in financial markets requires no capital and entails no risk. In reality, almost all ...
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6 votes
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What is the mix of maturities of outstanding US Treasury bonds called?

Weighted Average Maturity of Marketable Debt
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6 votes

Mathematical open problems that (when answered) might unlock MAJOR mathematical (micro)economics/finance/econometrics discoveries

People have argued that if $P \neq NP$ then efficient markets are impossible and certain equalibria may not exist. However, they may hold approximately, so I'm not sure if this qualifies. Additionally,...
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6 votes
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What institutions are examples of "shadow banking"?

While whomever told you about "shadow banking" in China is correct that in an international context, the term can often refer to informal banking arrangements (the earliest use of the term); ...
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6 votes
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How did the derivatives market 'collapse' in 2008?

The question is quite complex and an answer should be far beyond looking only at the structure of the derivatives, but i try my best. The initial situation: Between 1998 and 2006, the price of the ...
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6 votes
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What at all justifies income taxes (as opposed to sales taxes only)?

There's a fair amount to unpack in the question, so it might be useful to take it step by step, and consider everything from a more abstract, economic theory perspective. ...those who are more ...
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6 votes
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Example of Law of One Price holds but No Arbitrage Fails

Examples where this happens are always extreme and contrived. I can think of two kinds of examples. The first is where you have an asset that for some reason has a price of zero or negative but a ...
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  • 9,127
6 votes
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Are no arbitrage models and equilibrium models equivalent?

...no-arbitrage models (such as Black-Scholes and HJM) are equivalent to equilibrium models (such as CAPM or C-CAPM). Short Answer Yes, for models where asset prices are assumed to be Ito ...
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5 votes
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Deriving the Modigliani--Miller Theorem

The first equation can be written as: $$ r_E(Levered) = \frac{E+D}{E}r_E(Unlevered) - \frac{D}{E}r_D $$ Then, isolating the unlevered return gives: $$ r_E(Unlevered) = \frac{E}{E+D}r_E(Levered) + \...
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5 votes
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Dealing with Missing Data when Testing the CAPM

Easiest fix: if you're worried about it you should value weight your results. This is suggest by, for instance, Kothari, Shanken and Sloan (1995). Firms that are delisted tend to have extremely small ...
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  • 2,006
5 votes

Best resources to self-educate myself in economics

If I'm to give a single reference on learning six years of economics by yourself, it would be MIT Economics Course http://ocw.mit.edu/courses/economics/ The MIT has the best graduate economic ...
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5 votes
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What's the term for consumers not being able to pay their mortgage?

Not paying a mortgage is first known as delinquency (when payments are missed) and later, default (when the loan is written down and the lender seeks foreclosure). But an inability to pay has no ...
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5 votes
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Why was Modigliani-Miller so relevant and innovative when it came out?

People, particularly business leaders, seem to remain confused about this issue even today. At the core of is the question Is equity finance expensive?. We certainly observe in the data that the ...
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5 votes
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Apply Ito's Lemma to exponential martingale

$\newcommand{\dd}{\, \mathrm{d}}$ If we apply Ito's lemma, then \begin{align*} \dd \xi_t &= -\xi_t \dd X_t + \frac 12 \xi_t (\dd X_t)^2\\ &= -\xi_t \left(\frac 12 \lambda_t^2 \dd t + \...
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  • 9,127
5 votes

Why do celebrities get high wages?

The other answers already give a good explanation about how actors are not easily replaced. But I'd like to highlight a flaw in the premise of your question: namely that you are cherry-picking data. ...
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