Macro 21 - The Financial Sector

Question 1

What is the general role of financial markets?

Answer 1

Financial markets bring together buyers who wish to borrow funds and sellers who wish to save funds. The financial market will help allocate resources and set a price between buyer and seller

Question 2

What are the four specific roles of financial markets?

Answer 2

• To facilitate the saving, borrowing and investment
• To facilitate the exchange of goods and services
• To provide forward/future markets for commodities and currencies
• To provide a market for equities

Question 3

What are the 5 types of market failure in the financial sector?

Answer 3

• Speculation and market bubbles
• Asymmetric information
• Moral Hazard
• Externalities
• Market Rigging

Question 4

What are the four main roles of the central bank?

Answer 4

• Banker to the government
• Banker to the banks
• Role of regulation in the banking industry
• Implementation of monetary policy