Explain the process by which prices of securities adjust so as to eliminate arbitrage profits. How does the existence of money affect economic growth? What are the implications of understanding the role of money and banking on how the economy will function?

Question

Social Studies

Leyla

22 October, 22:27

Explain the process by which prices of securities adjust so as to eliminate arbitrage profits. How does the existence of money affect economic growth? What are the implications of understanding the role of money and banking on how the economy will function?

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Antony Anderson · Answer 1

In competing to buy securities where earning arbitrage profits is possible, traders force prices up to the level where arbitrage profits can no longer be earned.

Explanation:

The banking system plays an important role in the modern economic world. They collect the savings of the people and they lend it to the business men. Such loans benefit the trade and commerce.

Banking system can create money which is necessary when business expands. Banks play a major role in creating the free flow and liquidity of money in the economy of developing countries.