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Questions and Answers
What has been one of the most promising areas of e-commerce according to the text?
What has been one of the most promising areas of e-commerce according to the text?
What has significantly affected the financial system since the latter half of the 1990s?
What has significantly affected the financial system since the latter half of the 1990s?
The internet and innovative information technology.
E-finance has seen rapid growth since its inception.
E-finance has seen rapid growth since its inception.
False
Which country has higher usage of high-tech equipment and e-finance than its income suggests?
Which country has higher usage of high-tech equipment and e-finance than its income suggests?
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What category of investors has emerged due to online trading?
What category of investors has emerged due to online trading?
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The costs in the retail broking market have been ______ due to internet technology.
The costs in the retail broking market have been ______ due to internet technology.
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What concerns may arise with new trading systems in wholesale markets?
What concerns may arise with new trading systems in wholesale markets?
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Electronic trading decreases the variety of trading arrangements available in the markets.
Electronic trading decreases the variety of trading arrangements available in the markets.
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The effects of electronic trading can be market specific and sometimes counter-intuitive.
The effects of electronic trading can be market specific and sometimes counter-intuitive.
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Electronic trading allows for the handling of higher volumes of trades.
Electronic trading allows for the handling of higher volumes of trades.
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Electronic trading has been uniformly adopted across all sectors of the financial markets.
Electronic trading has been uniformly adopted across all sectors of the financial markets.
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The introduction of electronic trading does not impact market quality.
The introduction of electronic trading does not impact market quality.
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Policy-makers are indifferent to the changes caused by electronic trading in financial markets.
Policy-makers are indifferent to the changes caused by electronic trading in financial markets.
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Electronic trading can lead to both fragmentation and consolidation of trading arrangements.
Electronic trading can lead to both fragmentation and consolidation of trading arrangements.
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The introduction of electronic trading has made customization of trading processes more challenging.
The introduction of electronic trading has made customization of trading processes more challenging.
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The liquidity of major equity securities complicates their transition to electronic trading.
The liquidity of major equity securities complicates their transition to electronic trading.
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The US equity market has a greater number of alternative electronic trading venues compared to Europe.
The US equity market has a greater number of alternative electronic trading venues compared to Europe.
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The floor trading of the New York Stock Exchange remains unaffected by automation.
The floor trading of the New York Stock Exchange remains unaffected by automation.
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Regulatory environments have had a significant influence on the outcomes of electronic trading in the US compared to Europe.
Regulatory environments have had a significant influence on the outcomes of electronic trading in the US compared to Europe.
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In Europe, the introduction of electronic trading was primarily driven by competitive pressures and not by regulation.
In Europe, the introduction of electronic trading was primarily driven by competitive pressures and not by regulation.
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Alternative electronic trading venues can thrive in Europe due to significant regulatory advantages.
Alternative electronic trading venues can thrive in Europe due to significant regulatory advantages.
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Electronic order books are trading methods available at mainstream venues in both the US and Europe.
Electronic order books are trading methods available at mainstream venues in both the US and Europe.
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Market structures have no impact on the take-up of electronic trading methods.
Market structures have no impact on the take-up of electronic trading methods.
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Study Notes
Perceptions and Reality
- During the late 1990s, the internet and IT greatly impacted the financial system by transitioning from restricted proprietary systems to open networks.
- Public perceptions about internet activities faced a correction in the mid-2000s, reflected in decreasing high-tech stock prices and disillusionment with e-commerce enthusiasm.
- However, the financial industry experienced less speculative mania around internet applications, likely due to regulatory supervision and improved IT management after the Y2K experience.
- E-finance, being information-intensive and often requiring no physical delivery, is seen as a promising e-commerce sector.
- Some e-finance applications like broking have been successful, while others like e-money and e-insurance have had slower adoption rates.
Transformational Impact
- New internet-based technologies can fundamentally redesign market architecture, leading to new business models in some areas and minimal impact in others like banks' corporate advisory work.
- The internet might trigger a rapid expansion of lending to a single industry, reminiscent of past technological booms (steam, rail, electricity, cars, and radio).
- This time, the technology directly impacts the banking system itself, adding a new dimension to the potential risks.
Data and Uncertainty
- Despite its focus on data transmission, e-finance statistics are inadequate, hindering analysis and making it difficult to assess developments.
- Many articles rely on extrapolated estimates of uncertain origin and cross-country comparisons based on varying definitions.
- Gaps in knowledge about the current state exacerbate uncertainty regarding the nature and speed of future e-finance developments.
Comparative E-finance Developments
- Table 1 highlights the varying levels of e-finance development across economies, with usage generally aligning with income levels.
- Countries like Korea show higher e-finance adoption than their income suggests, potentially driven by low internet charges.
- Predicting e-finance's future growth is challenging, with uncertain factors including the dominant platform (PC, mobile, or digital TV), the role of established financial institutions, and the potential for greater or lesser concentration.
Impact on Trading in Financial Markets
Retail Markets
- Internet technology has significantly transformed the retail broking market, reducing costs and providing customers with readily accessible information.
- Online trading now accounts for over half of retail stock trades in the US.
- This has led to the emergence of "online day traders" and the unbundling of research, advice, and transaction services by brokers.
Wholesale Markets
- E-trading is reshaping the structure of wholesale financial markets, notably in foreign exchange and equity trading, introducing new architectures and rules.
- New trading systems often involve consortia of dealers, raising concerns about potential anti-competitive practices and price determination.
- Transactions not reaching main exchanges might not contribute to price determination, posing a further concern.
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Description
This quiz explores the influence of internet technologies on financial systems during the late 1990s and the subsequent changes in public perception by the mid-2000s. It examines how e-finance applications have evolved, highlighting successful innovations like online broking while addressing challenges faced by e-money and e-insurance. Test your knowledge on the transformational impact of technology in the finance sector.
