WEEK 1 - FINANCIAL SYSTEM

Question 1

is a system that allows the exchange of funds between
financial market participants such as lenders, investors/ institutions, and borrowers.

Answer 1

financial system

Question 2

A _________ consists of individuals like borrowers and lenders and institutions like banks, stock exchanges, and insurance companies actively involved in the funds and assets transfer.

Answer 2

financial system

Question 3

It gives investors the ability to grow their wealth and assets, thus
contributing to economic development.

Answer 3

financial system

Question 4

Different purposes of financial system in an economy

Answer 4

1. working as payment systems,
2. providing savings options,
3. bringing liquidity to financial
   markets, and
4. protecting investors from unexpected financial risks.

Question 5

In any functional economy, economic resources are limited, with individuals having unlimited wants and desires. This problem,
referred to as __________ is one of the significant drivers of an
economy.

Answer 5

scarcity

Question 6

Components of Financial System

Answer 6

1. Financial instruments
2. Financial services
3. Money
4. Financial Markets
5. Financial institutions

Question 7

act as intermediaries between the lender and the borrower when providing financial services.

Answer 7

Financial institutions

Question 8

These include:

• Banks (Central, Retail, and Commercial)
• Insurance Companies
• Investment Companies

Answer 8

Financial institutions

Question 9

These are places where the exchange of assets occurs with borrowers and lenders, such
as stocks, bonds, derivatives, and commodities

Answer 9

Financial markets

Question 10

help businesses to grow and expand by allowing investors to contribute capital. Investors invest in company stock with the expectation of it producing a return in the future. As the business makes a profit, it can then pass on the surplus to the investors.

Answer 10

Financial markets

Question 11

enable individuals to trade within the financial markets. These
can include cash, shares of stock (representing ownership), bonds, options, and futures.

Answer 11

Financial Instruments

Question 12

provide investors a way of managing assets and offer protection against
systemic risk.

Answer 12

Financial Services

Question 13

These also ensure individuals have the appropriate amount of capital in the most efficient
investments to promote growth. Banks, insurance companies, and investment services
would be considered _________

Answer 13

Financial Services

Question 14

is a form of payment to exchange products, services, and investments and holds
value to society.

Answer 14

Curreny (money)

Question 15

Functions of Financial Systems

Answer 15

1. Payment system
2. Savings
3. Liquidity
4. Risk management
5. Government policy

Question 16

allows businesses and merchants to collect money in exchange for their products or services. It can be made with cash, checks, credit cards, and even cryptocurrency in certain instances.

Answer 16

Payment System

Question 17

allow individuals and businesses to invest in a range of investments and see them grow over time. Borrowers can use them to fund new projects and increase future cash flow, and investors get a return on investment

Answer 17

Savings

Question 18

The financial markets give investors the ability to reduce the systemic risk by providing ________. It thus allows for easy buying and selling of assets when
needed.

Answer 18

Liquidity

Question 19

It protects investors from various financial risks through insurances and other types of contracts.

Answer 19

Risk management

Question 20

Governments attempt to stabilize or regulate an economy by implementing specific policies to deal with inflation, unemployment, and interest rates

Answer 20

Government Policy

Question 21

is a component of financial market where short-term borrowing can be issued. This market includes assets that deal with short-term borrowing, lending, buying and selling.

Answer 21

money market

Question 22

is a component of a financial market that allows long-term
trading of debt and equity-backed securities.

Answer 22

capital market

Question 23

Types of Capital Market

Answer 23

1. Primary market
2. Secondary market

Question 24

Types of Money Market

Answer 24

1. Call money
2. Treasury bills
3. Commercial bills
4. Commercial paper
5. Certificate of Deposit

Question 25

refers to the market where securities are created and first issued, while the secondary market is one in which they are traded afterward among investors.

Answer 25

Primary market

Question 26

refers to the sale of bonds from corporations or government entities to investors.

Answer 26

primary debt market

Question 27

is where investors buy and sell securities they already own. It is what most people typically think of as the “stock market,” though stocks are also sold on the primary market when they are first issued.

Answer 27

secondary market

Question 28

• Primary beneficary is the issuing organization
• Objective is to raise funds
• Includes new securities such as Initial Public Offerings

Answer 28

Primary Market

Question 29

• Primary beneficiary is the investor/shareholder
• Objective is capital appreciation
• Includes trading of securities already offered to the marketplace

Answer 29

Secondary market