Concept explainers
The role of a financial system and the different financial markets and intermediaries.
Explanation of Solution
The system that allows the exchange of funds between the different sectors of the economy such as the lenders and the borrowers, lenders and the investors in the most possible form of the money, credit or the finance are known as the financial system. The financial system will operate under various levels in the economy such as the national levels and global levels etc. The main role of the financial system is to provide a matching between the savings of the one who have excess money to the
The stock markets are the markets that exchange the stocks in order to raise the capital for the investment purpose. The stock is the share of the firm and the stock provides the share of the ownership right to the one who holds it. The large corporate uses this sale of shares in order to raise the investment capital. The stocks provide the stockholders the share of the firm's profit and thus, they are known as the shareholders of the firm. The Bonds on the other hand is the certificate of indebtedness which guarantees the repayment of the loan amount after the maturity of the Bond and the payment of interest on the loan amount. The large corporations, federal government or other state or local governments uses to borrow with the help of the Bonds. The bonds provide interest to the bond holders.
The two different financial intermediaries are the banks and the Mutual funds. The bank accepts the deposits from the public and uses the deposits to create credit in the economy and to provide the loans to the borrowers. The Mutual funds sells the shares to the general public and uses the proceeds to buy a portfolio of financial assets.
Concept introduction:
Financial system: The financial system is a system that allows the exchange of the funds between the lenders, investors and the borrowers through the medium of money, credit and finance etc.
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Chapter 18 Solutions
EBK ESSENTIALS OF ECONOMICS
- Which of the following explains the relevance of financial institutions? a. Financial institutions spur economic activity by providing credit for business expansion. b. Financial institutions create profits for depositors. c. Financial institutions allow governments to print money. d. Financial institutions provide the main source of funding for start-ups.arrow_forwardWhich of the following is not a primary participant in the financial marketplace? a. governments b. businesses c. military units d. individual householdsarrow_forwardWhich of the following is NOT TRUE about Financial Intermediaries? *A. Financial Intermediaries are institutions that serves as a bridge between the SSUs and DSUs.B. Financial Intermediaries makes the financial system more efficient.C. Financial Intermediaries earn profits through various transactions and services they offer.D. Financial Intermediaries offers investment advices.arrow_forward
- Which of the following is TRUE about financial regulations? *A. Financial regulations makes the financial system organized, stable and maintain its integrity.B. Financial regulations are not always required in the financial system because financial institutions are already regulated by designated government agencies.C. Financial who are privately trading inside information are highly acceptable in the financial system.D. Financial regulations are laws that are not necessarily need to be enforced.E. None of the choices.arrow_forwardOne of the tasks of a Financial System include providing affordable loans to all consumers and firms.True or Falsearrow_forwardOne of the biggest problems for any economy is to figure out how to get or transfer money from people or firms who want to save (savers) to people or firms who want to borrow (investors). Explain how financial markets can help to solve this problem efficiently. Discuss how financial markets function and which tools they can offer to solve this problem. Discuss how financial systems are of crucial significance to adequate capital formation, which is indispensable to a speedy economic growth and development.arrow_forward
- The following are the common characteristics of financial intermediaries, except: *a. Providers of loans.b. Maintains stability in the capital market.c. Making the investors rich.d. Providing investment advicearrow_forwardMatch each of the following players in the financial system with the financial product(s) they are most associated with. Instructions: You may select more than one answer. Click the box with a check mark for correct answers, and click to empty the box for the wrong answers. Players Financial product Stocks a. Commercial banks 2 Bonds ? Loans Stocks b. Savers Bonds 2 Loans Stocks c. Investment banks Bonds 2 Loansarrow_forwardview picturearrow_forward
- It analyzes the responsibility of the financial system in the demand for investment versus the supply of savings.arrow_forwardWhy does the "wherewithal" and "efficiency" of the financial system matter (so much)?arrow_forwardExplain why the existence of financial institutions can allocate financial resources better!arrow_forward
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning