Week 2 - The Financial System

Question 1

What is the financial system?

Answer 1

• Economic arrangement wherein financial institutions
  facilitate the transfer of funds and assets between borrowers, lenders, and
  investors
• Financial system needs trust to function

Question 2

4 ways the finance contributes to the economy

Answer 2

1. As payment system
2. matching lenders and borrowers
3. management of personal finance across our lifetimes.
4. Risk management.

Question 3

What are the components of the financial system

Answer 3

• Financial institutions.
• Financial assets
• Central Bank and financial regulators.
• banking sector

Question 4

What is a financial asset

Answer 4

An asset that represents a claim on someone else for a payment
(security: a tradable financial asset i.e. can be bought and sold in a financial
market)

Question 5

Stocks

Answer 5

• A claim on a part of assets of a firm, and hence on its profits.
• vast majority of stock trades take place between investors
• When you buy microsoft stocks, are buying shares from stock owner who is deciding to sell.

Question 6

Financial Markets

Answer 6

a place where stocks, bonds, securities and other financial instruments can be sold.