Exercise 1 9/8 Flashcards
A primary role of the financial system of a country is to:
provide an efficient distribution of capital for promoting economic growth
The organization responsible for paying the bills incurred by the US Gov is the:
US Treasury
If a commercial bank finds itself in need of borrowing funds and cannot acquire those funds from the private sector, then it could likely borrow from:
the discount window
Asymmetric information in financial markets is a potential problem usually resulting from:
borrowers having more information than the lenders, and not disclosing this information
What describes financial instruments?
can transfer resources and risk between people
Compared to interest rates on long-term US gov debt, interest rates on short-term US gov debt tends to fluctuate _____ and is usually _____ over time
more: lower
Large, persistent budget deficits may cause:
a reduction in the level of investment in plant and equipment
Most individuals lend:
indirectly, using a financial intermediary because it lowers the cost and risk of lending
Financial markets promote greater economic efficiency by channeling funds from _____ to _____
savers: investors
Goals of financial regulation
Providing information to economic agents, minimizing the transactions costs associated with funds transfer, promoting the soundness of the financial system
The Federal Reserve System:
functions as a bank for banks
The bond markets are important because they are:
the markets where interest rates are determined
An example of the problem of _____ is when a college student loses $4,000 playing poker and uses their student loan money to cover the losses.
Moral Hazard
Since WWII, banks in the US have generally:
been a source of financial innovatons
Ordering of sources of funds firms rely on for investment from most important to least important
Loans from financial institutions, bond issues, stock issues
