POL 3 Lecture 15: 15 Lecture 5-18
Document Summary
More profitable to be an expert in producing one good, and trade for the rest. Rather than making all of your own goods. Investors are now dependent on the economy of the state they invested in. Because we are based in a world of floating exchange rates, states are dependent on each other for what the exchange rate will be. Because of our high degree of interdependence, economics do not stay within borders of one state. Govts issue bonds with the promise of a return of a certain value later in time. Private debt: loans and corporate stocks and bonds. Derivatives: financial claims against future earnings by households, corporations, and financial institutions. Hedging: insuring against losses by distributing risk. Tells us something about the financial promises that have been made, and if they will be credible and be paid out or not.
