Should the potential benefits of financial system innovation deter Essay

Should the voltage benefits of financial system creation deter regulators from imposing restrictions on the activities of fi - Essay ExampleFirstly, it spurs economic growth by facilitating the easy flow of funds from the agents who have less or limited productive projects to agents with high productive avenues. Secondly, the level of risk taken by an consecrateor is reduced on account of a broader accessibility of assets resulting in greater diversification benefits and risk sharing. However, the above views have come under tremendous unfavorable judgment with the predication that financial innovation reduces the risk exposure of the investors. The financial innovation was essentially introduced from a tyrannical perspective but it has been seen that these innovations had a negative impact on the overall economy. Though the main excogitation of this innovation was to aid the growing external debt market in U.S., it is now blamed to be the pivotal cause of the recent credit turmoil. To avoid such recurrences in the future, the regulatory bodies need to exercise a greater control over the financial markets. (Piazza, Financial Innovation and Risk, The Role of Information). Financial innovation bane or boon Innovation is a double-edged sword. ... This blend of good and seriously means the views on financial innovation is likely to be very subjective. As in the subject field of automobile inventions, while some view it as a gain for the economy and society there are others, though very few in number, who believe that pollution and accidental deaths arising from this invention surpass the societal and economic benefits. According to analysts, financial innovation caused the recent financial crisis with the extent of culpability ranging from alternative to extreme. According to some, financial innovation has led to some very effective inventions such as the asynchronous transfer mode machine whereas the other financial inventions like Structured Inves tment Vehicles (SIVs) are a bane. The list of exacting innovations includes Automated Teller Machine (ATM), debit cards, money market funds, exchanged traded funds, indexed mutual funds, currency and reside rate swaps (The Brookings Institution, The Pros and Cons of Financial Innovation). The use of debit cards has enhanced the attractiveness of accounts as masses no longer have to stand in queues to withdraw money. The introduction of financial swaps has empowered the businesses to dodge against any unforeseen circumstances. So, if a business with a huge export base is wary of derogation of the receivables then it can take a suitable position in the currency swap. By this way, the cheer of its receivables remains intact. Similarly, a prospective borrower afraid of rise in interest rates, can buy out front rate agreements (FRAs) that will safeguard his position in the event of any unfavorable movement in interest rates. Financial innovation has empowered the domestic companie s to raise the necessary funds or invest surpluses in the foreign capital markets.