Economics

Since 1970, the United States government has been assisting corporations financially, though signing for the corporate when acquiring loan, backing for the corporate debts, or injecting capital to the corporate. These practices and policies are considered in varying perspectives. The Federal Reserve considers the intervention to have positive contribution to economy stability, while other people do not see the logic behind it.  Bailouts involve taxpayers money, and they aim at rescuing firms facing financial crisis. Effective use of the bailouts creates opportunity for big bonuses. The CEOs of such firms are entitled to bonuses made from the taxpayers money, despite their poor work. (Ralph, 2000, pp. 6).

The U.S corporate bailouts paid by tax payer money and the big bonuses the CEOs of these companies received.

Corporate bailout paid by the government involves taxpayer money directly or indirectly. The money can be generated through printing new money, tax revenue, or foreign debts, but in any case it is only the taxpayers who suffer economically. The CEO of companies receiving bailouts paid by taxpayers gets big retention bonuses from the bailout. These bonuses are not related to the CEOs performances. The government invests most of taxpayers dollars in mortgage backers such as Fannie Mae and Freddie Mac executives, leaving very little to the IAG.  The CEO of AIG requires the recipients of the bonuses to return at least half of their total bonuses, but the CEOs of the two organizations do not bother. Studies show that the government has given CEO of the organizations a mission to address the housing crisis using the bonuses. Many questions come up when analyzing the amount paid by the taxpayers and the amount of bonuses the bailed firms get.

Taxpayers find themselves paying for large bonuses received by the CEOs of these firms. Some people argue that the government should be involved in regulating the amount of bonuses earned, while others argue that the main goal of the firms is to make money, thus should not be limited by regulations. Wall Street package contains restrictions on how the CEO should be paid, but it does not restrict the firms from paying bonuses to the executive. According to President Obamas argument, the CEOs in firms receiving bailout should not get any bonus. Bonuses should be paid for good work and performance, and since these CEOs have failed in their work to an extent of involving bailout, they should be ashamed rather than being entitled to bonuses. However, this is not usually the case. These firms beg for taxpayers money in order to rescue the firm, make lot of money from the taxpayers money and then they reward themselves leaving the taxpayers to suffer economically and in other ways. (BBC, 2009).

What is the public perception of this
Public arguments involves mixed reaction towards corporate bailout paid by money collected from taxes, and the big bonuses the companies receive as a result of bailouts. Some people argue that authorities should be involved in careful weighing of the consequences of the companys bankruptcy and the cost of bailouts. If the cost of bailouts is higher than the consequences of the companys failure, then the company should be left to fall. It is common for people to buy parts of the remnant after the organization has failed. Collapse of a firm with a deep connection in the financial system is catastrophic to everybody. In such cases regulators should consider bailout which is cheaper than the systemic risks associated with the failure of such organizations.

Other people argue that the taxpayer should not be left to pay for bailout in order to save the financial system rather, the system should be left to collapse, and undergo serious depression. When the system is assured of depression as a result of its collapse, and that taxpayers will not be involved with the distressed financial firms, then the financial firms will work hard to avoid distress, reducing the number of distressed financial firms and subsequent need for bailouts. Some of the banks should be left to move to the wall. Most of these bailouts involve the money collected by the government from taxes, and most of banks become bankrupt due to over lending. In this case, the taxpayers should not pay the bill for busting banks. Bailing out banks means bankers keeping their huge bonuses.

What actions (if any) did congresssenate take to attempt to stop this The impact of these actions on the stock market

The government has developed plans to free up credit market and help banks through the governments individual intervention and private interventions.
 
In 1971, the United States government honored a request from Penn Central Railway. The railroad received a financial assistance of 676 million in loan guarantee, and the government consolidated the Penn Central railroad with other railroad companies struggling to survive. The Consolidated Railroads was formed as a result of the consolidation. The result of the financial assistance given to the Penn Central Railroad was positive. In 1987, the consolidated railroad was sold by the government for 3.1 billion and extra 579 million was collected as dividends, after which it was taken public.

In the same year, the Aerospace Company Lockheed received 1.4 billion aid from the governments Emergency Loan Guarantee Act. The aid stabilized the financial state of the contractor, while saving California jobs. The result of the loan was positive as the Lockheed aerospace company completed to re-pay the loan in 1977 with 112 million associated fee. (Cheryl, 2004, pp. 22).

In the first half of the year 1974, the Franklin National bank suffered catastrophic losses. The bank sort government intervention which injected 1.75 billion loan. The result of the government intervention in the Franklin National bank was negative as the government detected mafia and corruption ties. This made the government to own the bank, and sold the banks assets for 5.1 billion within five years.
In 1979, Chrysler Corporation Loan Act was developed and in 1980 when the corporation automaker became bankrupt, Chrysler borrowed 1.5 billion private-funded loan to rescue the automaker from the bankruptcy. The government backed the Corporate Loan Guarantee act, in borrowing the loan. The results of the government back up was positive as, Chrysler completed repaying the loan in 1983 and went further to purchase 14.4 million stock shares warrant  from the government  amounting to 311 million.  

The Continental Illinois National bank and Trust Company was considered by the regulatory agencies as a very big company unlikely to fail. In 1984, the FDIC took more than 80 of the banks total share through injection of 4.5 billion as a rescue to the bank. The result of the governments aid was negative, as the government incurred a loss of 1.8 billion in 1994 when the majority of the banks ownership was given back to the public. (CLN, 2010).

 In 1989, large number of savings and loan institutions recorded insolvency. As a way of responding to the issue, the Financial Institutions Reform Enforcement and Recovery Act gave taxpayers money worth 50 billion. The outcome was positive as many of the savings and Loan institution were liquidated, and the industry practices was given more restrictions  

The attacks of September 2001 left the airline industry crippled. The Air Transportation Safety and System stabilization Act was passed by the congress in effort to mobilize the airline industry. The airlines received 15 billion for defense against the attacks lawsuits, and mandatory plane grounding.  The result of the government aid was positive as the airline stock was purchased below the actual market prices which give the taxpayers a net profit. However the government went a cost of 23 million as a result of bankruptcy of one of the airlines assisted.

In 2008, the non-resource loan worth 29 million was issued by the Federal to   insure  236 million purchase of Bear Stearns by JP Morgan, and to cater for the less liquid assets in Bear Stearns Company. The result of the government assistance was both negative and positive. (CLN, 2010).

The Treasury secretary announced bank rescue plans which were established to address the toxic asset problem. Toxic assets in the banks anchored around the banks ankles. Following the past experiences, the rate at which the banks are lending is reducing, as the banks prefer preserving capital. Continuous sell off in the stock market has continued to deplete the retirement accounts wealth.

The offshoring of jobs have become an area of concern in economics as well as political world. This issues is affecting most rich English speaking countries especially the U.S. the rate at which many Americans are losing jobs to offshoring has necessitated Blinder and other economists to write about this issue.

1. Outsourcing  offshoring

Offshoring is a situation where a job is transferred from one country to another. On the other hand outsourcing is a situation where a company contracts another company to perform a task or tasks on its behalf.

2. Kinds of jobs are at stake with service offshoring.
These jobs include accounting, security analysis, advertising, and typing services

A. personally-delivered services vs. impersonally-delivered services
The personally delivered services are non tradable services that require direct contact with the customer. The possibility of delivering these services electronically without degrading the quality is low .e.g. surgery and child care. On the other hand impersonal services can be delivered electronically from far while the quality of the service is not degraded.

B. non tradable services vs. tradable services
Non tradable services are the services which cannot be performed without a direct contact with the customer. This service cannot be delivered electronically or by another person on behalf of another. Tradable services can be delivered electronically without degrading their quality.

3. Why Blinder thinks service offshoring could be Big Deal for U.S. workers (not justfree-trade business as usual)

Blinder is worried because service offshoring will negatively affect the many Americans who now earn their living providing services, the technology improvement will lead to the range of services delivered electronically and the growth of the number of Chinese, Indian and other workers capable providing services which can be delivered electronically will continue to increase.  How did Blinder arrive at his estimates

Uses data from ONET to create a subjective ranking from 100 (most offshorable jobs) in descending order. In deciding offsharability he used the degree of electronic transmission and quality degradation caused through the electronic transmission of the job. He considers importance of the face-to face contact as negative indicator of offffshorability. Using this criteria Blinder assigned numbers between 0 and 100 that indicated potential offfshorability of each occupation. He then used the numbers to draw a histogram with Y-axis representing employment distribution and X-axis representing the offsharability index. By counting from right hand tail of the histogram he came up with the number of potentially offshorable jobs.

Big political issue
The white collar jobs e.g. accounting, editing and radiology are about to be displaced through offshoring which is an occurrence likely to create political outcry from these workers.  Unlike the white collar jobs the blue collar jobs have been exposed to the offshoring for decades.  English is most used language in electronically delivered services and this will result to both gains and losses to English speaking countries like U.S. The policy Blinder postulates that, the Trade Adjustment Assistance (TAA) records have been miserable. It has not been generous.  It has been emphasizing on assistance rather than adjustments. It has also serves a very small number of people. T.A.A has not been the government priority. It has neither been well advertised nor properly designed.

Policy in that will extend a hand to all displaced workers will serve best. Better unemployment insurance, more generous earned income Tax Credit (E.I.T.C), universal health insurance, wage-loss insurance and greater portability of pensions will be a great relieve to workers who lose their jobs.  However, a strong strategy that will make sure that displaced workers are back to productive activities should be emphasized.

The future work force
The demand for labor has shifted to college students leaving away the high school graduates and drop outs causing rising income inequality leading to skilled biased technical progress. The next 30 years call for preparing the future labor force for high-end personal services occupations that will not be offshored. Government responsibility

The education system that encourages innovation and creativity should be encouraged by the U.S. government. The invention of new goods and services, business creativity will provide jobs for the future generation.

The debate
Freeman and Kletzer agree that something unusual is going on. Bhagwati perceive as if Blinder is against trade. The labor markets of US have experienced evolutions normally. The 1970-80s labor market evolution saw the creation of many jobs in service sector. Today the services which are impersonal are being taken up by other countries. This will necessitate another evolution to counteract these.  The estimate of jobs by Blinder is crude. It is also subjectively done. Kletzer suggest that high-value work should be emphasized although concurs with Blinder that something loss of jobs to offshoring is happening.

China and India As postulates by Fisher (2008), China and India are one of the most growing developing economies. These countries have a large population with large G.D.P but relatively low per capita income.

The Per capita income has climbed to 4,766 and 2,534 for China and India respectively. China has specialized in manufacturing sector which is served by the cheap labor from the large population.  India has specialized on services provision using her large English speaking labor force.

The agricultural sector is not developed so much as compared to service sector. These countries have been opening up their economies. China has also invested so much in infrastructures development as well as technological innovations. India has invested in service delivery to tap jobs from current offshoring of jobs that is happening in rich English speaking countries. China is faced with shortage of raw materials to supply the manufacturing sector. Political challenges include the call for more democracy which has not been well developed by current regime.

The theory of comparative advantage was advanced by David Ricardo in the 19th century. The theory in economics refers to the ability of a region, nation, firm or individual being able to produce specific goods and services more efficiently than other parties. The party in question can produce other goods but is able to produce some specific goods at a lower opportunity cost than its counterparts. Thus, Ricardo suggested that the two parties should strive to produce those goods that they can produce at lower opportunity costs over other goods no matter how good they are at producing the other goods (Suranovic, 2007).

There are a lot of misconceptions as regards this theory it is often confused with the theory of absolute advantage which refers to the capability of a party to produce specific goods at absolute costs that are lower than others the theory is mostly presented mathematically the theory contradicts simple logic as seen from the results of models (Suranovic, 2007).

A simple illustration of the law of comparative advantage
Two countries A and B both produce wool and food. However, country A produces more wool and food than country B. Therefore, it has an absolute advantage in the production of both wool and food. However, it produces more wool than food.
Country wool food
A 15 30
B 10 15

The above is a table of the costs in terms of labour hours required to produce wool and food in countries A and B. The production of an extra unit of food by country A will mean less production of wool by 2 units. Therefore, the opportunity cost of 1 unit of food is 2 units of wool. In country B, production of an extra unit of food will lead to less production of wool by 1.5 units. Thus, the opportunity cost of 1 unit of food is 1.5 units of wool. Country B is better at the production of wool than food. It thus has a comparative advantage in the production of wool. Country A is better at the production of wool than food and thus has a comparative advantage in the production of wool. However, country B has an absolute advantage in the production of both commodities. It would be advantageous for both countries if they were to engage in trade.

Before After
Country wool food wool food
A 8 5 18 0
B 9 6 0 12
Total 17 11 18 12 (Mulligan, Hay  Brewer, n.d.).

Production Possibilities for A and B

Country A would give up production of food and thus would be able to produce 10 extra units of wool due to the opportunity cost of 2. Country B would give up production of wool and focus on food. It would then be able to produce 6 extra units of food due to the opportunity cost of 1.5. Clearly, total production of both countries would increase. By specializing, the overall benefit to the world economy on the production of both commodities would increase.

Assumptions however were made by Ricardo in the simple model.
There is free trade and barriers of trade are not present
Production costs do not change
The costs of transporting commodities is not considered
Both parties have full knowledge and are aware of the cheapest place to get goods internationally
The economies of scale are non existent... (Mulligan, Hay  Brewer, n.d.).

Most countries in joining free international trade fear they will be out-produced by other countries that have absolute advantage in certain areas. Thus, this would lead to alot of imports and very litttle exports. A disadvantage for them... (Investopedia, n.d.). Comparative advantage suggests specialization in production of certain goods for export and importing the rest despite their absolute advantage in production of all goods. This has been applied in international trade. During the industrial revolution, Britain outsourced production of food by importing food stuffs such as cheese and wine, but, it focussed on the production of manufactured foods which it exported.

The problem with the law of comparative advantage today is that it is affected by monetary policies and exchange rates.

In international trade, countries trade from different regions and different economies. There are countries that are economically developed compared to others. The value of their currencies in the international market is thus higher than other countries. Also, international trade is done in specific currencies that favour certain countries over others. Comparative advantage in such situations does not apply since developing countries lose out in trading with developed countries.

Take an example of trade between Kenya (a developing country in East Africa) and Britain (a developed country in Europe). The value of the British pound vs the Kenyan shilling is roughly 140 Kenya shillings for every 1 British pound. Kenya has a comparative advantage in the production of food stuffs. Britain has a comparative advantage in the production of machinery and manufactured goods. However, in the trade between the two countries, Kenya loses out since they have to pay more for the machinery due to the difference in the foreign currency exchange rates. Kenya is thus forced to pay more Kenya shillings to convert into British pounds to buy machinery from the UK. Britain doesnt pay as much for the food stuffs since its currency has more value than Kenyas currency in the international market. Therefore, the law in such a case fails to benefit both countries and one country ends up benefiting over the other despite the trade being done in a common currency i.e. British pound, the exchange rates heavily affect one country. Therefore, such monetary distortion affects the law. The law would be less affected  in a perfect world economy with no differences in foreign exchange rates Differences in the costs of factors of production also have an effect on the thoery.

In the economy of today, comparative advantage hardly applies due to existence of quotas, taxes and regional trade. There are a lot of countries that are able to produce a particular product. Therefore, there are options as to where such commodities can be bought. Factors such as transport costs and international relations affect the trade of such commodities. The perfect situation that Ricardo used does not exist.

Economics is the study of choices made by individuals under the conditions of scarce resources such as factors of production. The common factors of production, that is, land, labour, capital and entrepreneurship are scarce. This means that for individuals to get satisfaction from these factors a choice must be made. Every day to day activity is a matter of making choices so even the simplest events can be turned into an economic model.

Economics is defined as the study of rational choices made under the conditions of scarcity. A simple choice in economic model may be a situation where an individual makes choice between going to dinner and seeing a movie. Scarcity means that the amount of production factors is insufficient to satisfy the desire of many users. Scarcity therefore means that supply is low and this results to high demand. Production factors such as land, labour and capital used to produce goods and services for the needs of the society are usually insufficient. Low supply which is termed as scarcity raises demand thus leading to increased cost. Higher cost make an appeal to suppliers to produce more and this makes cost to be normal (Stroup, 2003, p.17).  The most affected by insufficient production factors are individuals and society as a whole.

Individuals have limited income, time and ability that avoids such people from having what they like. As a society the major problem is that of limited resources such as man power, natural resources and machinery. This fixes a maximum amount of goods and services produced at any given level of production. Limited production inputs makes consumers, organisations and the country subject to making rational choices.

Scarcity requires individuals and society to make choices in relation to these limited production factors. The choices made leaves individuals desire partially satisfied and on the other hand unsatisfied. Scarcity forces individuals to take less than what they desire. Economics is related to scarcity in that any economic activity cannot exist without scarcity forcing individuals to make choices. In the event of scarcity and choice, there is opportunity cost. This is the cost of the next best foregone opportunity. In other words opportunity cost is the true cost of a scarce resource in the market due to limited production inputs. For example, when a person has two options A and B he or she is supposed to compare the benefits of option A with that of B and choose the option with highest benefit (Stevens, 1993, p.25). In economics, three basic questions should be answered in relation to scarcity and choice. These questions include
What to produce
How much to produce
 How to produce

The economy addresses issues of efficient utilization of resources. The combination of goods and services to be produced with limited production inputs. Another concept of economics as a concept of scarcity and choice is the manner in which goods and services are distributed to each individual.
Another element of economics is production possibilities frontier that shows trade off in the use of production factors. Any given country is blessed with particular quality and quantity of natural resources, land and labour. Different resources make countries to decide between the different combination of resources used to produce goods and services (Vanberg, 1994, p.28). The level at which goods and services are produced is a measure on whether demand for goods and services is adequate. The type of goods to be produced from the limited resources is related to opportunity cost.

A good  illustration to show  how  production depends on opportunity cost is  in a  situation in which more  of product  X is  produced  and less of  Y. The numerical value is defined by reduced production of product Y divided by increased production of good X. When the ratio is more than unity, the choice of producing additional amount of good X becomes expensive. On the other hand, when the ratio is equal to 0.3 the cost of producing good X decreases.

The combination of the three elements in economics that is scarcity, choice and opportunity cost is represented in Production Possibilities Model. The model is a reflection of curve which is usually a frontier or boundary.  The model describes combinations of output in production of two goods say X and Y produced under the condition of scarce factors of production. Position of production possibilities curve is an indication of maximum amount of output combinations available (Geoffrey, 1999, p.21). A production possibilities curve close to the origin signifies that resources are very scarce. On the other hand, when the production possibilities curve is distant from zero it signifies that there is less scarcity.

Given country A has a given amount of capital and fixed quantity of labour as factors of production. Another country B has different production inputs. The two inputs can be represented in a production possibilities frontier to show scarcity and implications of choice. This is represented in the diagram below
                           
Production possibilities frontier
SHAPE   MERGEFORMAT Country A has higher number of labour units while country B has higher number of capital units as is observed from the diagram. When the two countries decide to use one factor of production country A will use 300 units of labour while country B will use 300 units of capital. This is an indication of trade off between the two countries in the use of production factors. To achieve the same level of out put in the two countries, they have to make a choice on the number of labour and capital units to use respectively (Vanberg, 1994, p.46).

The level of output along production possibilities frontier does not change but what actually changes is the use of production factors. Efficiency and production possibilities frontier are related in that every point on the production possibilities is considered to be efficient. Any point outside the production possibilities frontier is taken to be inefficient. However, one weakness of production possibilities curve is that it does not tell the best point in which production can take place in a situation of scarce resources.

Opportunity cost in this economic assumption represents the number of labour or capital each country decides to avoid using in order to employ other production inputs. This change results to technical rate of transformation and is a representation of the available technology in a country that allows the changes in the use of production inputs. This is  due  to an increase  in the  use  of  other factors of production in the  process of producing  goods and  services for country A and  B. Opportunity cost in the case  of an individual represents the value of the  best foregone  alternative activity or item.

Economy is a matter of scarcity and choice in that in any given country the economy can produce to a given limit. The limit is technological, information, natural resources or organisation. All these elements in an organisation or country are usually limited and choices must be made to sustain the demand of the market.  Consumers are supposed to make choices in grocery store, while purchasing cars and in any other form of economic activity (Stevens, 1993, p.60). These activities contribute to a complex economic process that is related to scarcity and implications of making choices.

The issue of scarcity is the major element that leads to creation of a balanced market structure that obeys the law of demand and supply. Making a choice in a given span of opportunities may be difficult but a consumer is guided by the best opportunity. When the benefits in one opportunity are high, the consumer cannot avoid such opportunity. It is a phenomenon in which every economic activity should undergo so as to develop an option of balance in consumers satisfaction.

The concept of efficiency in economics is the best element that saves country and individuals from exploitation of limited resources. Economics supports the principle of minimising wastage of limited resources. All available resources should be utilised inn an efficient manner to avoid wastage. To control this, organisations are supposed to assign production inputs in the right channel of production or task (Geoffrey, 1999, p.52). Resources should be employed fully in specific areas of production so as to avoid wastage of resources. One element through which the concept of efficiency in scarce resources can be achieved is through competition. Through competition all production inputs are put into use and none is wasted.

The need for realizing equality in the global community has been the concern of many. Indeed, this is the reason behind the founding of both the World Bank and the International Monetary Fund (IMF). These two international organizations have the sole purpose of giving financial assistance to developing nations and developed nations faced with a financial crisis. The organizations are thus instrumental in helping needy economies invest on structural, social and economically viable projects for the good of its citizens.

Nevertheless, some members of the global community have claimed that IMF and World Bank do not in essence impact positively in ensuring the realization of sustainable economic development across the globe. This is because they have made many developing nations victims of debt and poverty due to their policies. All in all the organizations have evidently influenced development and governance structural changes in many nations and thus should continue existing.

The social, political and economical prosperity of most nations in the world today is no doubt the mission of both IMF and World Bank. IMF is on purpose a financial aid organization which serves to give short term low interest financial assistance to nations. On the other side, World Bank is engaged in providing long term financial loans to nations for the purpose of implementing structural reforms (Winters, 2007).

The realization of sustainable development in any economy requires the presence of financial capital. This is because it involves mainly the setting up of reliable infrastructures which guide improved production and distribution policies in a nation. World Bank therefore is an instrumental financial source for the realization of economic development in developing nations. First, it provides funding for proposed projects at a competitive interest rate and long repayment terms that with an effective government in place, the impact of the debt is outweighed by the benefits gained (Winters, 2007).

IMF, as a source of short term financial assistance to nations has the advantage of ensuring sustainability of economies. This is because is it engages in fighting eminent humanitarian problems facing the society. Just to be noted here is the fact that economies of many nations are greatly compromised during time of dealing with disasters. This is because governments invest much of its economic value in the disaster thus greatly compromising other aspects of economic development. However, with a financial aid like is for the case of IMF, nations ensure continued economic investments while still resolving national disasters. Due to this, the gains from continued economic investments will be more than the debt to be paid for the financial aid thus sustainability of the nations economic development.

Both World Bank and International Monetary Fund have the advantage of promoting social development in the global community (Winters, 2007). This is best portrayed from their policies of inclusion, cohesion and accountability. The realization of social fairness, justice and development lies in making the public satisfied with the actions of the government. Unlike the claims of many critics of world and IMF, these financial assistance organizations are quite influential in improving accountability of governments of use of public funds (Winters, 2007). They only give financial assistance based on a proposed project on condition that future assistance will be determined by who accountable the government will be to the use of such funds. Another thing, it has been a common practice by these organizations to deny financial to governments tarnished with cases of corruptions and poor policies.

The other advantage is that World Bank and IMF seeks to ensure development through inclusion of the citizens of the particular nation (Winters, 2007). According to statistical information available, most policies of these organizations are tailored towards insuring economic independence of individual citizens. It is due to this reason that most of their funded projects seek to employ the local communities. This means that the institution not only lead to economic benefits for the citizens but also lead to increased knowledge through training programs thus ensuring independence. By cohesion, World Bank and IMF are quite engaged in enhancing the social fabric in communities. This is best portrayed in the many responsive measures they take towards assisting both financially and technically nations or communities marked with civil conflicts. Sustainable development is best realized in communities that uphold harmonious coexistence and therefore World Bank and IMF should be thanked for these policies.

World Bank and IMF are seen by many as profit making institutions. However, though their provision of financial assistance to nations is marked with some interest rates, such are much lower compared to those involved in nation to nation mutual assistance agreements. These organizations limit their terms and conditions to guaranteed loan payment and accountability in the use of the loans for the correct purpose. It is however evidently clear that most mutual agreement involving governments are typically biased. This is based on the fact that most of such agreements involve the provision of a nations natural resources for financial assistance. Due to this reason, developing nations are subjected to resource exploitation thus compromising chances of realizing sustainable development.

As financial institutions, World Bank and International Monetary Fund have evidently shaped many government policies to reflect fairness, justice and equitable distribution of resources. The underlying mission statements of these organizations are to engage in social, political and economical prosperity for all nations (Winters, 2007). With this therefore, the only viable plan must involve the streamlining of a nation governance policies to ensure that the government can account to the public on expenditures of public funds. Indeed, many nations across the globe have been subjected to mandatory implementation of quality policies and laws as conditions for gaining access to financial assistance from either World Bank or IMF.

IMF and World Bank are a source for supporting foreign exchange businesses in nations (Winters, 2007). It is a common thing that a nation can be experiencing foreign currency shortage. This means that its foreign transactions such as involving exports are at risk of collapsing. It is at such times when World Bank and IMF financial assistance becomes quite crucial by even the developed nations in a move to safeguard their economies. This is because most transactions in the modern society are subject to contract laws that dictate heavy responsibilities on any party breaching the contract.

In conclusion, it is has been established that World Bank and IMF are quite influential in the realization of economic development particularly in developing nation. Despite the many critics of this organization, World Bank and IMF have seen the economic prosperity of many nations in the world. They influence the upholding of governance, government accountability. By this, these organizations are not only a source of financial assistance for nations but also mechanisms to ensure accountability. It is only by this that equitable development and distribution of resources can be realized in a nation.

The developments in current financial markets have been a result of gradual changes caused by decisions made by various economic actors both locally and internationally.  Many countries have embraced free market economy and liberalized trade. The economic sectors which were monopolized by the government have now been taken over by firms and individuals. The sectors that provide public goods and merit goods are however still dominated by the governments due to their various characteristics that make them infeasible for the private sector.

High competition and call for efficiency have been some of the factors that have propelled processes of privatizing state owned enterprises. Many state owned enterprises have of late been characterized by poor management and political controls which have threatened their success. Privatization process involves transfer of ownership of the state owned enterprises to private sectors through allocation of shares or direct sale.  William (2003) postulate that in many European countries, great privatization of state owned enterprises have occurred since 1990. He asserts that the main drives to privatization have been

1. Market efficiency objectives
The exposure of the privatized enterprises to the market forces ensure market efficiency objectives are achieved. Thus the economic efficiency and growth can easily become a reality. Efficient markets will ensure resources are allocated in the best way through market mechanism where forces of demand and supply dictate transactions.

2. Capital market development and attraction of foreign investment
Privatization of state owned enterprises offers a chance to the private sector to buy shares from these enterprises and become owners of these enterprises. This also increases liquidity in equity markets.  Foreigners can also come in and be part of those buying those shares

3. Fiscal objectives
It has become a policy of many governments to cut expenditures so as to avoid deficits in their budget. Since the state owned enterprises have usually been allocated some funds to ensure their survival then their privatization have been a great relieve to the government. The budget deficit is therefore narrowed.

Political objectives
The privatization process ensures accountability and reduces cases of corruption reported from the state owned enterprises. It also offers a chance to the citizens to own and control their economy.  Patriotism and association to the government on the part of the citizens is thus created.
The emergent of the current financial market have played a great role towards the privatization of the state owned enterprises. Their structures mixed with the prevailing institutions have enabled the process of privatization.

Financial markets include all mechanism involved in transactions of buying and selling. Selling and buying may involve commodities such as manufactured and agricultural goods, financial securities such as bonds, treasury bills and bonds, all services with an economic value  or any other item that has a value attached to it. Financial markets therefore enable transfer of risk and capital raising as well as international trade. Financial markets may entail commodity markets, capital markets or money markets.

Key issues and concepts that explain why emerging financial markets behave differently from developed financial markets
The behavior of current financial markets has variation from that of already developed financial markets.  As postulated by David and Charles (2001), the cause of this can been attributed to various factors. Some of these factors include

1. Law
Various rules and regulations have been formulated to guide the financial markets. The past experience of poor financial markets have increased the quest for creating rules that will ensure that the causes of poor financial markets performance will not be repeated.  Old rules and regulations are modified while some are done away with to give existence of new promising rules.  The rules concerning contracts, property rights (the copy rights, patinents and trade secrets), acquisition and mergers rules and corporation procedures have entailed new changes in the financial markets. Laws formulations have also been influenced by behavior and norms prevailing in these financial markets.

1. Institutions of information and control
Information technology has been changing rapidly. Today market information can be accessed by various economic actors. This information is very essential to market players as far as making is concerned. In our contemporary world, processing of market data to obtain sensible information can be achieved through a click of the computer mouse with the support of various information systems soft wares. Various institutions which are financial markets information based have been formed to provide the essential information to market players.

Control institutions have also been part of current financial markets. Capital markets and money markets are usually controlled by various institutions.  Capital market authorities have the role of ensuring that the stock markets runs smoothly. The central banks federal reserves also have some control on money market. They ensure smooth flow of currency and that the exchange rates are conducive for financial markets. It is these banks which issue currency and or coins which are a major medium of exchange in financial markets.

In todays financial markets players are well informed and even they can predict the next market trends. Their expectations dictated by the information available have a great influence on financial markets. Businesses reporting dailies, websites and information systems have become available to the economic agents. Nowadays consumers with common interests can share information in an effort to solve their problem.

3. Inflation and currency stability
Inflation can be defined as the persistence increase in price. The prevailing inflation rates have greatly influenced the economic actors decisions.  The current financial markets are characterized by changing rates of inflation. No any economic agent will wish to make a decision that will lead to losses. When prices are high, buyers will rather hold their wealth in liquid form than purchasing assets like stocks and other capital assets. On the other hand when inflation rates are low buyers will be willing to buy assets with intention of making capital gains. All this decisions and their consequent results such as increase or decrease in circulation of money makes the current financial markets to behave differently as compared to the already developed financial markets. The currency stability is usually determined by the world market. These will have effect on international financial markets.

Technology
Technological innovations have greatly influenced the financial markets. The inventions of credit and debit cards have influenced the purchasing behavior of many economic agents. The internet has also become an important forum to buyers and sellers. Selling and buying can be conducted online without the physical contact of the seller and the buyer. The informediaries have also played a great role in the current financial markets. Innovations have also lead to production of very high quality products. This has enhanced competition among the producers and the process of learning has become very essential for any producer wishing to survive in this markets.

Michael etal (2003), postulate that the process of globalization has also played a big role in economic growth. The globalization process has an indirect and a direct influence. Globalization in terms of labor market, commodity markets, and capital markets has greatly influenced the behavior of today financial markets. Varieties of commodities from various countries are available in the local markets. Labor mobility across the borders has also increased. The capital markets have also been internationalized. These entire occurrences have affected demand and supply forces in the market. Consequently prices have been changing every day.

Luigi (2005) asserts that many current economies are characterized by high technological investments, risks and new equity financing. The issue of risks is another characteristic that is influencing the current market behavior. Risks can be associated to various financial markets. The chances of getting loss in capital markets, commodities market or the money market have been varying everyday. The insurance companies have intercepted to cover most of these risks. This has greatly influenced the behavior of economic players who are risk averse. The current financial markets have also experienced growth of small and medium size enterprises.

The economic and legal foundations associated with the design and regulation of financial systems in emerging markets
Various economic and legal institutions have been formulated to design and regulate financial systems in emerging markets. According to Jeffrey (1994) the capital markets have been influenced by the law governing internationalization of equity. Banking laws and International Monetary Funds (IMF) have acted as one of big foundations of todays financial markets and also to the promotion of international trade. Thorston (2003) postulate that, legal institutions governing enforcement of contracts, private rights and efficient allocation of capitals has been vital in the current financial markets.

James etal (1998) asserts any bank restriction can be very lethal to financial markets. Changes in supervisory and regulations standards should be enhanced to ensure financial crisis does not replicate. Randal (2000) asserts that, regulatory reforms is one of great foundations to the financial markets. Since technology has ever been changing then the prevailing regulations should be changed to accommodate these changes.

James and Glenn (2009) postulate some financial conditions about China. The financial markets in China are characterized by large banking sector, reduction of non performing loans while improving their efficiency. There has been non standard sector consisting of alternative financing channels, institutions and governance mechanism. Two bodies are involved in capital markets. These are  Shangai Stock Exchange and Shenzhen Stock Exchange. The company law covering firms with limited liabilities, publicly traded and listed companies, keeping of accounting records, mergers and acquisitions and bankruptcy has been instituted. China is also a member of World Trade Organization (WTO) and has signed the General Agreement of Tariffs and Trade (GATT) which constitute two institutions that have a big say as far as international financial markets are concerned.

The current financial markets in China are under transition to more liberalized markets. The technology is also a big influencing factor in China. Competition is very high since production technology is highly emphasized. The markets have been partially liberalized although much needs to be done. Asli and Ross (2003) postulate that inflation, bank regulations and financial intermediation usually reflects the broad national approach to private ownership, policies institutions, interest margins as well as competition.
Key strategies associated with the management of risks in financial development

Risks in financial markets are as a result of uncertainties associated these markets. The chances getting loss is all what entails risk. Risk management will involve transfer of those risks to another party, loss mitigation, completely avoiding the risk or being ready to accept consequences associated with a particular risk.

The insurance companies have been managing risks of various economic agents. Simone (2001) postulates that efficiency and emphasize of productivity as well as optimization can play a big role in risk management. Decisions based on optimization will ensure risks are managed to the lowest possible levels.  Optimization culture and systems should be directed at producing healthy enterprises. Proactive measures will also be a great contribution to risk management. Michael etal (2007) asserts that sellers should identify the customers needs, attain a strategic competitiveness and aim at above average return. The prevailing external and internal environment, available resources and information should be used in making optimal decisions.

Conclusion
Financial markets are ever changing phenomena.  Economic actors will seek to optimize their choices given the current technology and available information. The sellers will seek to satisfy their customers needs profitably. The resultant situation is a very competitive market through which inefficient sellers will be wiped out. Innovation will be a strategic advantage to any player. In such an environment in our present financial markets then changes are inevitable. The ever inefficient, corruption eroded and accountability lacking state owned enterprises and organizations cannot survive in such an environment. Their privatizations will be a great relief.

The economic history of Turkey can be traced back to the times of Ottoman. Then, the economy was underdeveloped with its agricultural sector using archaic models and livestock being of poor quality. However between the periods of 1923-85 the economy grew at a record 6 annually. This was mainly attributed to the development of the countries economic structures into complex ones. The goods were produced for both local and international markets. This acted as impetus to the country to move from take off to drive to maturity (Todaro, 123). This did not however effectively materialize as had been projected by the government. The economy was bedeviled by international debt which had gone as high as 18 billions particularly owed to the International Monitory Fund (IMF).  

The Iraq war of the 1980-88 benefited the Turkish state largely. After the war Iraq and Iran became major trade partner of the Turkish government. Because of the restrictions that had been put on the Iraqi and Iranian governments, the two countries largely depended on Turkey for the export of crude oil. In 1991 Persian Gulf War devastated the economy again. UN embargo restricted the export of oil by Iraq. This dealt a blow on Turkey because then, it was receiving a lot of fees from the pipeline that transported the oil. In 1994 Turkey suffered another setback. This was as a result of large salaries offered to its civil servants. This triggered an unprecedented public and external borrowing. As a result of the borrowing, the rate of inflation went up with a record 73.

The role turkey was playing in international politics affected its growth in 2006. Overall, the world started developing some interest in Turkey because of the then presidents stand on international politics. This jeopardized the economic growth of Turkey. Further, this created a rather difficult political state with far reaching repercussions on the countrys internal infrastructural stability. This totally changed the international balance.

Politics has not been left out in this economic fray that Turkey was undergoing. The dispute between the prime minister and the central bank governor over the approval of extra borrowing, led to loss of public confidence in the government. This lack of confidence led to the fall in the exchange rate of the local currency. These happenings of 1993 preceded the stable economic policy of 1994. The country embarked on a dollarisation policy in which most of the investments were done in terms of dollars.  While this looked lucrative in the eyes of the investors, it dealt a blow on the Turkish Lira. However, these aforementioned fluctuations prepared a fair landing for the Turkish economy.

The Turkish economy showed unrelenting signs of growth in the beginning of the 21st century (Erbaykal). Within the following analysis I do consider the incomes and per capita income of Turkey and its nationalities. Steadily as can be captured from the data below, the income of the Turkish government increased through, 2006, 2007 and 2008. Notice that they there was some economic slump in the year 2009 and the projected total out come for 2010.

20062007200820092010Annual Disposable Income (US million)411,867.81506,494.08560,334.75481,136.82490,368.88The per capita income for the period translates to 82.37, 102.04, 112.06, 98.32 and 94.33. These incomes show a steady increase. The trend changes in 2009 to the projected 2010.
If the incomes are translated into income indexes and per capita indexes with 2006 as the base year the indexes derived are
Income Index 1.0000, 1.2297, 1.3605, 1.1681, 1.1906
Per capita index 1.00, 1.24, 1.36, 1.36, 1.19
By plotting the figures on a trend curve, it can be adduced the growth in the period of 200809 stagnated.

EMBED MSGraph.Chart.8 s
From this chart, it is notable that the Turkish government was on a growth trend. However, like most countries it has also been affected by the economic slump that has hit the world particularly the developed countries.

The trend reflected above picks from a period (2006) when the Turkish nation was suffering from some international dilemma. The dilemma arose from its position on whether to continue with pro-western policy that appeared particularly anti-Islamic. Its launch of its nuclear reactor in the year showered its alignment to the Iranian side. Further, this accounted for the low economic performance. This dilemma affected its relationship with the Europe and America. This consequently dealt a blow on the financial markets, translating into economic slowdown (Todaro, 230).

The increased inflation in the year increased the price deflator relative to 2004 as a base year. However from the data considered the Turkish nations showered steady signs of economic growth. It can be adduced from the data that international economic policy will always tend to eat into both major and minor economies.

Conclusion
In conclusion, it should be noted that any trade shocks both arising from within or without the nation may largely affect the performance of a nations economy. The war in Iraq for example had a multiple effect on Turkey. It was a blessing at the time Iraq was transporting its petroleum products through the country. On the contrary, it dealt a blow on its international relations hence reducing its international activity (Erbaykal). Further, it can be concluded that provided a nation is engaged in some international dealing, shocks in the international spheres will always trickle down to individual nations.

The economic grunge that was experienced in 2008-09 affected the performance of Turkey in the same period accounting for the negative gradient of the trend curve above. Politics can not be separated from economic performance of any nation. The Turkish nation experienced relative calm in the period 2006-2009, this accounts for it steady performance over the same period. Ultimately therefore, as Todaro (6) asserts economic development will remain a multidimensional aspect, involving the reorientation and restructuring of institutions economic, political, social and cultural. Herein lies the parameters that have shaped and reshaped the Turkish economy.