4.4 Financial sector

Question 1

What is a financial market

Answer 1

Where buyers and sellers meet to trade financial assets (intermedians)

Question 2

Example of lenders

Answer 2

1.Savers
2.Investors

Question 3

Example of borrowers

Answer 3

1.Indivuals
2.Firms
3.Government

Question 4

Example of financial market

Answer 4

1.Commercial bank
2.Investment banks
3.Pension funds
4.Hedge funds
5.Mutal funds

Question 5

5 roles of financial market and explain

Answer 5

1.Faliciate savings- saving accounts and holding stocks
2.Lend money- businesses invest indivuals spend
3.Falicitate exchange of goods and services- transfer money from bank to bank
4.Provide foward money- buy and sell and recieve money in the future
5.Market for equities- buy and sell shares

Question 6

4 Roles of central bank

Answer 6

1.Regulate banking industry
2.Last resort to banks
3.Implement monetary policies
4.Loan to Government

Question 7

What is moral hazard

Answer 7

When people take more risky actvitities after getting insurence

Question 8

4 ways financial sectors fail

Answer 8

1.Speculation- people dont make rational descisions as they believe something will happen
2.Moral hazard -> the gov wont let banks fail “too big too fail”
3.Asymetrical info
4.Market rigging

Question 9

What is the Monetary Policy Comittee (MPC)

Answer 9

9 members who use monetary polcies to keep prices stable