potential returns and
risks of the investment project for which funds are being lent. The
existence of asymmetric information creates problems in the
financial system both before a transaction is entered into, in
evaluating borrowing proposals, and after, in monitoring and
enforcing the loan contract.
2.2.1 Asymmetric information:
-building policies aimed at strengthening core competencies. Of
course, one might add that the new regime was given an enormous initial
fillip through the provision of taxpayers’ funds, combined with the lucky
coincidence that for once in its generally unprofitable existence FerrantiPackard generated substantial surpluses that arrived just in time for Derek
Alun-Jones to announce his first set of results.35 On the other hand, especially
once the NEB had divested itself of its Ferranti shares in 1980 and two years
later the government-imposed moratorium on trading in these stocks
The final volume of this detailed history of Ferranti covers the last seven years of its operating existence, starting with the 1987 merger with ISC and culminating in a humiliating demise consequent upon GEC’s 1993 decision to withdraw its bid for what by then was an unprofitable rump. Extensive attention is paid to the way in which ISC evolved under James Guerin’s stewardship, providing insights into the shady world of international covert arms dealing. While in 1987 Ferranti purchased what was regarded as a highly profitable defence electronics business, by 1989 it was apparent that ISC’s net worth was marginal, creating an accounting hole in what by then was Ferranti International from which it never recovered, in spite of highly imaginative strategies enacted by a new chief executive, Eugene Anderson. The book provides detailed insights into international mergers, corporate governance issues and defence electronics that highlight the dangers associated with competing in one of the fastest-moving industries of that era.
has covered the leading theories of the markets. They are abstract theories; indeed, more so than they should be, since they lack a sound empirical base. The dominant theory of the Efficient Market Hypothesis distracted regulators, market participants and central bankers from paying attention to market prices as signals or from recognizing the existence of bubbles in the housing market, as Alan Greenspan admitted. The decline in house prices should have been a signal, and was indeed a real indicator of deeper troubles in the market. Instead of regarding the market
out, is termed ‘uncovered interest rate parity’. The
efficient markets hypothesis implies that the returns in the two
centres should be equal, so that both types of IRP should exist in
the foreign exchange market. The evidence for the existence of this
type of efficiency will also be examined in section 10.6 .
10.3.3 The international Fisher
in existence are
discussed in the next section.
The ability to finance investment through borrowing
undoubtedly encourages economic development and the existence of
financial claims also stimulates household saving. The investment and
saving flows in our simple economy are represented by the outer loop of
figure 1.1 . The non-spending of income (or
saving) by households
made considerable advances by reducing market
relations to the mutual interaction of demand and supply correspondences
to represent the two sides of any transaction; but what lies behind demand
and supply, as theoretical constructs, cannot be reduced to questions of the
independent behaviour of autonomous individuals. Yet almost all approaches
to economic behaviour presuppose the existence and primacy of independent individual agents (mostly persons and firms) who engage in purposive
action in the light of their resources, knowledge and interests. Those are, as
unlikely to be sufficient to
account for the general preponderance of upward-sloping yield
curves. It is likely that some other factor has also been at work.
The second source of criticism is that the degree of forecasting
ability credited to market operators is, to say the least,
excessive. Is it really credible to assume the existence of agents
able to forecast future movements of
The sterling money market
located in London is a wholesale market for short-term funds and
consequently provides facilities for economic units to adjust their
cash position quickly. The rationale for its existence is that
receipts of and payments in cash are not generally synchronised.
Quite large cash balances are needed if
themselves. The illusion that they can is further present in the assertion that
firms can either make things or get them from the market (the ‘make or buy’
decision). While this is true, in fact the existence of a market for inputs is, of
course, dependent on the existence of other producers making those inputs.
Markets are not an alternative to production or to firms or ‘hierarachies’ but a
mode of co-ordination of the division of labour. Enterprises or hierarchies are
usually involved not only in co-ordination but in production; they are therefore not merely