Bus 475 Preparation: Reading Chapter 8 Business Government R

Bus475preparation Readingsochapter 8 Business Government Relatio

Bus475preparation Readingsochapter 8 Business Government Relatio

BUS475 Preparation ï‚· Reading(s) o Chapter 8: Business – Government Relations o Chapter 9: Influencing the Political Environment ï‚· e-Activity o Go to CBS News Website to watch the video titled, "Behind the closed doors of Washington lobbyists" (9 min 41 s), located at Go to CBS News Website to watch the video titled, “Behind the closed doors of Washington lobbyists†(9 min 41 s), located at . Business and Government Relations" Please respond to the following: From the discussion case in Chapter 8, examine the argument for and against the regulation of derivatives. Suggest at least two (2) reasons the government should or should not regulate the trading of derivatives. Provide a rationale for your suggestions.

From the e-Activity, debate it: Lobbyists should not be permitted to have unlimited access to government officials. Justify your response.

Paper For Above instruction

Introduction

The relationship between business and government plays a crucial role in shaping economic policies, regulation, and overall market stability. One of the most contentious issues within this domain is the regulation of financial derivatives and the access lobbyists have to government officials. This paper examines the arguments for and against the regulation of derivatives, provides reasons supporting or opposing such regulation, and discusses the ethical considerations surrounding lobbyists’ influence over government officials.

Regulation of Derivatives: Arguments For and Against

Derivatives are financial contracts whose value is derived from underlying assets such as stocks, bonds, or commodities. They are widely used for hedging risks and speculative purposes. The debate over their regulation centers on their potential to cause systemic financial instability versus their role in risk management.

Arguments For Regulation:

Firstly, derivatives can amplify systemic risk in the financial system. The 2008 financial crisis underscored how unregulated or poorly regulated derivatives, such as credit default swaps, contributed to the collapse of major financial institutions (Gorton, 2010). Regulation can mitigate such risks by increasing transparency and ensuring that market participants maintain adequate capital reserves. Secondly, regulation can protect investors and the broader economy from excessive speculation, which can lead to market volatility and economic downturns (Hull, 2018). Proper oversight ensures that derivatives serve their intended purpose as hedging tools rather than instruments for risky speculation.

Arguments Against Regulation:

Conversely, opponents argue that excessive regulation can stifle market innovation and reduce liquidity. Derivatives markets are vital for risk management; overregulation may increase transaction costs and limit the availability of financial products that businesses rely on to hedge against price fluctuations (Stulz, 2019). Additionally, some contend that well-informed market participants can self-regulate through risk management practices and that government intervention unduly hampers free-market dynamics.

Reasons Supporting or Opposing Regulation of Derivatives

Supporting Regulation:

1. Systemic Risk Mitigation: Implementing strict regulations, such as mandatory clearing and margin requirements, can prevent the buildup of excessive risk within the financial system, minimizing the likelihood of financial crises (CFTC & SEC, 2012). Regulators need a comprehensive oversight framework to monitor and address interconnected risks among financial institutions engaging in derivatives trading.

2. Market Transparency and Fairness: Regulation enhances transparency by requiring reporting and disclosure of derivative transactions. This reduces informational asymmetry, prevents market manipulation, and safeguards investor interests (Johnson, 2014). Transparency fosters trust and stability within financial markets.

Opposing Regulation:

1. Innovation and Market Efficiency: Overregulation may hinder market innovation, restrict the development of new financial products, and reduce market liquidity, compromising efficiency (Singh, 2020). Financial markets thrive on flexibility, and excessive rules can create barriers to entry and operational complexity.

2. Cost of Compliance: Regulatory compliance can impose significant costs on financial institutions, especially smaller firms, which might lead to reduced competition and reduced market diversity. These costs can ultimately be passed on to consumers and businesses that rely on derivatives for hedging (Macey & O’Hara, 2015).

Debate on Lobbyists’ Access to Government Officials

The role of lobbyists in influencing policy presents a complex ethical dilemma. While lobbying is a legitimate form of participation in democratic processes, unlimited access raises concerns about unequal influence and undue corporate sway over public policy.

Justification for Limiting Lobbyist Access:

Imposing restrictions on lobbyist access can promote fairness and accountability in government decision-making. Unlimited access can lead to disproportionate influence, where well-funded corporations and special interest groups sway policies in their favor at the expense of public interests (Drutman, 2015). Limiting access and increasing transparency, such as public disclosure of meetings, can curb potential corruption and promote equitable representation of diverse stakeholder voices.

Counterpoints:

Proponents argue that restricting access could hinder effective advocacy and the exchange of information necessary for well-informed policies. However, establishing transparent procedures, such as mandatory reporting and structured meetings, ensures accountability without outright restrictions on access (Baumgartner et al., 2019).

Conclusion

The regulation of derivatives remains a vital issue for maintaining financial stability and protecting investors, but it must strike a balance to avoid stifling innovation and efficiency. Similarly, regulating lobbyists’ access to government officials enhances transparency and fairness in policymaking. Both issues require nuanced policies that consider economic, ethical, and democratic principles to promote a stable and equitable economic environment.

References

• CFTC & SEC. (2012). Report on the regulatory framework for derivatives markets. U.S. Commodity Futures Trading Commission and Securities and Exchange Commission.
• Gorton, G. (2010). Slapped by the Invisible Hand: The Panics of 2007 and 2008. Oxford University Press.
• Hull, J. C. (2018). Options, Futures, and Other Derivatives (10th ed.). Pearson.
• Johnson, S. (2014). Transparency and Efficiency in Financial Markets. Journal of Financial Regulation, 3(2), 101–119.
• Macey, J. R., & O’Hara, M. (2015). The Case Against Overregulation of Financial Markets. Yale Journal of Regulation, 32(1), 231–258.
• Singh, M. (2020). Market Liquidity and Financial Innovation. Financial Analysts Journal, 76(4), 12–25.
• Stulz, R. M. (2019). Risk Management and Financial System Stability. Journal of Financial Economics, 134(1), 1–10.
• Drutman, L. (2015). The Business of America is Lobbying. Oxford University Press.
• Baumgartner, F. R., et al. (2019). Lobbying and Policy Change: Who Wins, Who Loses, and Why. University of Chicago Press.
• Jones, C., & Walker, J. (2018). Regulatory Challenges in Modern Financial Markets. Harvard Business Review, 96(2), 45–53.