Class 2 09.06.16 Lecture

Question 1

What are the functions of financial markets?

Answer 1

1. Provide ways to transfer economic resources through time, across borders and among economic sectors and industries.
2. Provide essential information to facilitate and coordinate decentralized decision-making Provide way to manage risk
3. Provide way to manage risk
4. Provide a means to clear and settle payments to faciliate trade
5. Provide a means for pooling savings and subdividing ownership shares

Question 2

What are primary markets?

Answer 2

Markets where securities are first sold to the public, and where firms or governments receive the bulk of the revenue form those sales.

Question 3

What are secondary markets?

Answer 3

Market where individual instituional investors trade securities among themselves.

Question 4

What did the Glass-Steagall do?

Answer 4

1. Created the FDIC
2. Separated banking from securities industry
3. Restricted checking deposits to commercial banks
4. Prohibited interest on checking deposits

Question 5

What is the McFadden Act?

Answer 5

1927 - prohbitied branching

Question 6

What is regulation Q?

Answer 6

Rule under which the Fed put a cap on interest banks could pay on deposits in particular savings.

Question 7

What are a firm’s financing alternatives?

Answer 7

• Retaing Profits
• Bank Loans
• Bonds
• Stock