4.4 The financial sector

Question 1

4.4.1 A)
what is financial market.

Answer 1

Financial market are where buyers and seller can buy and trade a range of servies and assets.

exists to meet demand for servies allowing speculatoion and financial gain.

Question 2

4.4.1 A-E)
What is the role of fm

Answer 2

1)Facilitate saving, through range of assest such as storing moiny in saving account and holding stocks + shares
2) to lend to busniess and individuals which allows for ^ consumption + investment
3)exhange of g&s creat a payment system
4) foward markets garenteed price for future provides stability
5) market for equities fm allows shared to be sold later making it more appealing

Question 3

4.4.2 A)
What are the types of market failure in financial sector

Answer 3

Asymmetric info
externalities
moral hazard
speculation and market bubble
market rigging

Question 4

4.4.2 A)
What are the types of market failure in financial sector
Asymmetric info

Answer 4

Financial instities have more knowledge compared to their customers meaning theycan selling them producst they dont need / having cheaping alt elsewhere

can also been instituite and rregulation little incentive to help regulation

Question 5

4.4.2 A)
What are the types of market failure in financial sector
externalities

Answer 5

cost placed on firm individuals and govt that fm doesnt need to pay for example cost to tax payer of bailing out bank

Question 6

4.4.2 A)
What are the types of market failure in financial sector
moral hazard

Answer 6

individuals make decisios in their own intrest knowing there are potential risk.
risk will ^ salary. workers lose job but company working for may lose millions. May also take risk as central bank will loan them money.

Question 7

4.4.2 A)
What are the types of market failure in financial sector
speculation and market bubble

Answer 7

speculation can create market bubbles where prices may fall / rise massivly

Question 8

4.4.2 A)
What are the types of market failure in financial sector
market rigging

Answer 8

collude to fix prices or exchange info to gain adv
effect prices for adv

Question 9

4.4.3 A)
Key functions of central banks

Answer 9

o implementation of monetary policy
o banker to the government
o banker to the banks – lender of last resort
o role in regulation of the banking industry

banniung market rigging prevent selling max IR