11
votes
Accepted
Are stock exchanges market makers?
No, they are not market makers.
A market maker is someone who (i) quotes two prices (one 'low' and one 'high'), (ii) will buy from any seller at the low quoted price (even if there is no ...
- 17k
10
votes
Accepted
Screw foreign investment, lets just print money
"Foreign Direct Investment" is to be understood as bringing in an economy productive capital, and not just purchasing power.
When an economy is seriously below full employment (of capital ...
- 33.9k
10
votes
Accepted
Is investment in real estate a real investment?
Purchasing new homes would count as an investment. According to Blanchard et al. Macroeconomics: a European Perspective pp 568 in glossary investment is defined:
Investment (I): Purchases of new ...
- 57.7k
8
votes
Does stock picking work?
In general, stock picking does not work.
For more information, see this keynote address by Daniel Kahneman, who found that stock-pickers perform worse than chance when they change stocks: https://...
- 356
8
votes
How to borrow at risk free rate
A private person will almost never have an access to borrowing at risk free rate. However, governments such as Germany or Switzerland can borrow at essentially for all practical purposes at risk free ...
- 57.7k
6
votes
Does stock picking work?
This question probably needs the obligatory Efficient Market Hypothesis answer to complement the great answer by Angela Richardson. Broadly, speaking, the EMH reasoning goes like this:
Suppose that ...
- 17k
5
votes
Accepted
What is the difference between a loan and an investment?
A loan is an agent lending funds to another agent. This money can be used for investment spending, or it can be used for personal consumption expenditures. It can be used to buy fixed assets like real ...
- 691
5
votes
Accepted
Can't a country grow its GDP without foreign investment?
No, you can definitely grow GDP without foreign investment or even trade.
There are 3 basic ways to grow GDP. One is increasing human capital, which includes increasing population as well as ...
- 165
5
votes
Accepted
How does the GDP multiplier work?
The multiplier comes from the solution to the goods market equilibrium. In economics everything is endogenous. Increase in income increases consumption that increases demand, demand increases ...
- 57.7k
5
votes
Keynes' conception of investment
The investment ($I$) equals savings ($S$) result is derived by Keynes just from national identity, as a result it just hold by definition. Keynes in the passage starts with the simplified version of ...
- 57.7k
5
votes
Accepted
What would happen if individuals stopped investing their money in conservative low-yield products?
That imagined world,
in which individuals only wanted to invest their money in stocks and not on any other product that has anything less than X% annually
is inconsistent with how people think about ...
- 1,652
4
votes
Why is investment not a cost in firms profit functions?
Both in Economics and in Accounting, there is the following fundamental principal: we have to subtract revenues generated in a given time period from costs incurred in the same time period (because ...
- 33.9k
4
votes
Accepted
Is a home (primary residence) purchase a form of investment in macroeconomics?
Home construction is a form of investment, home purchase is not. There's an important macro difference between creating the capital asset (construction) and transferring it (purchase).
Regarding ...
- 6,384
4
votes
Accepted
Why does the answer not include increased negative unplanned stock investment?
Scenario “C” does not specify “unexpected.” Since greater growth was expected, planned inventory investment would rise to meet higher expected demand.
- 9,907
4
votes
Accepted
How to compare investments with different risk and expected return?
The trade-off between risk and expected returns depends on your own preferences.
Assume that you are expected utility maximizer and let the return of the investment be given by the random variable $X$....
- 12.5k
4
votes
Is there any problem with this scheme?
Yes, there are such schemes. They are called pyramid schemes, and the problem is that they are illegal in most countries.
- 7,119
3
votes
Accepted
In the event of a company's bankruptcy, how does a SPV continue operations if it can no longer collect payments on collateral
Servicing and origination don't have to be done by the same firm. It is quite common that the financing company contracts out the servicing rights on the loans they originate.
Servicers, like many ...
- 16.3k
3
votes
Does stock picking work?
I think this Quora discussion on the fund manager illusion of validity told most of the story. As one commenter has pointed out the flaw of typical fund manager attempt to use Berhshire Hathaway to ...
- 381
3
votes
Accepted
Where does investment originate from in the circular flow model?
Investment ultimately comes from households through savings. From a macroeconomic perspective savings is equal to to investment ($S=I$).
Investment comes from income because saving is portion of ...
- 57.7k
3
votes
Accepted
What does it mean, 'Higher interest rates attract FIIs and FPIs'?
Foreign Institutional Investors (FII) and Foreign Portfolio Investors (FPI) can and do invest in government securities as well. There may be restrictions of course leading to imperfect capital ...
- 1,819
3
votes
Is investment in real estate a real investment?
By the way, after a house is built (whether it was built this year or many years ago) it does provide economic value. If renters live there, then the rent they pay is counted as a service in GDP. And ...
- 304
3
votes
Does treasury pay interest+ face value to the fed?
Yes, Fed sends all its profit including the ones it earns on government debt back to the treasury (this was already answered on this site here). Fed can create an unlimited amount of money by buying ...
- 57.7k
3
votes
Accepted
Proximity-concentration hypothesis: homogeneous firms and symmetric countries
$π = φ^{(σ−1)}*\frac{f_E+f_D}{φ^{(σ−1)}*(1+τ^{(1-σ)})}+φ^{(σ−1)}\frac{f_E+f_D}{φ^{(σ−1)}*(1+τ^{(1-σ)})}-f_E-2f_D$
$π = 2\frac{f_E+f_D}{(1+τ^{(1-σ)})}-f_E-2f_D$
$(1+τ^{(1-σ)})π = 2(f_E+f_D)-(1+τ^{(1-σ)}...
- 3,798
3
votes
Accepted
Risk seeking investors: Do they benefit from return at all?
Is it because risk seeking investors also get some utility from expected return?
Yes.
It is a common assumption that investors invest to get returns, so in this good space returns are indeed a "...
- 29.6k
3
votes
Are major banks in US necessarily going to benefit from the rise of federal fund rates?
Major banks will not necessarily benefit from a rise in the federal funds rate. One way major banks make money is from the difference between the interest rates they borrow at and the rates they lend ...
- 303
3
votes
Accepted
Is there any problem with this scheme?
You already know the problem:
Now, as there isn't an infinite amount of customers, somebody inevitably fails to recruit and they loses their invested amount.
That's the problem.
But, If they ...
- 987
3
votes
Why do multiple investment funds exist?
First, it is often hard to tell skill from luck. A fund that is leading today may be lagging tomorrow. Knowing that, investors may think twice before investing in a leading fund.
Second, not all ...
- 2,385
3
votes
Savings "identically" equal to investment?
This is indeed a strange explanation. I can only speculate, but my guess is that your teacher reasons as follows:
(i) The IS curve, as the name says, is the set of points in $(Y,r)$-space where $I=S$.
...
- 7,119
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