Exam 3 - Chapter 14

Question 1

3 examples of Future Claims in a financial market

Answer 1

Loans
Stocks
Insurance Premiums

Question 2

5 examples of Buyers (Borrowers)

Answer 2

Families buying a house
Student taking loans for college
Corporations building factories
Entrepreneurs starting new ventures
Government

Question 3

3 examples of Savers

Answer 3

buying stocks
giving loans
Putting money into mutual savings or savings accounts

Question 4

Who serves as the intermediary between Borrowers and Savers in a financial market?

Answer 4

Banks

Question 5

___ is when the bank makes cash more readily accessible when and where you want it.

Answer 5

Liquidity provision

Question 6

Explain bank Risk Diversification

Answer 6

• bank relies on many borrowers to collect it’s investment

- if the investment fails, bank will be able to recollect most of its money

Question 7

What is the market for loanable funds? What does “loan-able” funds refer to?

Answer 7

• simplified graph
• shows buyers and sellers

*dollars available between buyers and sellers is the loanable funds

Question 8

In the market for loanable funds, what is the Demand and Supply?

Answer 8

Supply = Savings
Demand = Investments

Question 9

3 determinants of Investment curve in Market for Loanable funds?

Answer 9

• future profitability of investments
• Uncertainty
• Government Deficit

Question 10

Determinants of Savings?

Answer 10

• Economic Conditions (Boom or Recession)
• Uncertainty
• Culture
• Social Welfare
• Wealth
• Borrowing Consraints
• Expectations about future Economic Conditions