Lesson 46- Role of the financial markets

Question 1

Give two key roles of financial markets

Answer 1

.To facilitate savings by businesses and households
.To lend to businesses and individuals
.To allocate funds to productive uses
.To facilitate the final exchange of goods and services
.To provide forward markets in currencies and commodities
.To provide a market for equities

Question 2

Give a key function of money

Answer 2

.Medium of exchange
.Store of value
.Unit of account
.Standard of deferred payment

Question 3

What does debt financing mean?

Answer 3

It is the borrowing of money from an outside source

Question 4

Give two of the main functions of a commercial bank

Answer 4

.Provide retail banking services
.Licensed deposit takers
.Licensed to lend money
.Profit seeking businesses

Question 5

What limits to credit creation by banks are there?

Answer 5

.Market forces-the scale of profitable lending
.Regulatory policies
.Behaviour of consumers and businesses
.Monetary policy-the level of interest rates