lect 1

• Order the main topics of the study material as outlined in the table of contents:

  1️⃣ The Modern Financial System

  2️⃣ The roles and functions of financial intermediaries

  3️⃣ Information economies

  4️⃣ The main theories of financial intermediation

  5️⃣ The cost-benefit trade-off of financial intermediation
• What two letters are conjoined in the image?

  r and o

  
• What word is shown in the image?

  Error

  
• What is one role of financial intermediaries in the economy?

  Bridging lender-borrower differences
• Depository institutions include commercial banks and credit unions
• Asymmetric information in financial transactions can lead to adverse selection or moral hazard.


  True
• The flow of funds in the financial system refers to the movement of money between surplus and deficit units.

  True
• What is the role of pension funds in the financial system?

  Provide retirement savings
• Credit rating agencies assess the creditworthiness of borrowers and their securities
• Who are considered surplus units in the flow of funds?

  Households with excess funds
• A financial asset is a claim for a future payment of money or periodic payments.


  True
• A financial claim obligates the issuer to pay interest and redeem the claim
• Surplus and deficit units can avoid intermediation costs by arranging transactions directly.

  True
• What is the term for economic agents with excess funds who act as lenders?

  Surplus units
• What are surplus units looking for in financial transactions?

  Safety and liquidity
• Liquidity refers to the ease of converting a financial claim into cash
• Borrowers typically prefer long-term financing at the lowest possible cost.


  True
• Match the type of financial market with its description:

  Equity markets ↔️ Markets for stocks

  Bond markets ↔️ Markets for debt securities

  Derivatives markets ↔️ Markets for contracts based on other assets
• Central banks oversee the financial system through monetary policy
• What is the primary role of depositary institutions?

  Accept deposits and provide credit
• What are some "other" components of the financial system that have become increasingly important?

  Credit rating agencies and shadow banking
• The 2007-2008 financial crisis originated with sub-prime mortgages
• Systemic risk refers to the spread of financial problems that could cause a collapse in the financial system.


  True
• What is the brokerage function of financial intermediaries?

  Matching transactors and providing services
• Order the roles of financial intermediaries in their intermediation function:

  1️⃣ Pooling the resources of small savers

  2️⃣ Providing safekeeping and accounting services

  3️⃣ Supplying liquidity by converting balances into payment means

  4️⃣ Providing ways to diversify risk

  5️⃣ Collecting and processing information
• The most straightforward economic function of a financial intermediary is to pool the resources of small savers
• The asset transformation function of financial institutions makes claims more attractive to savers.


  True
• What is the purpose of the payment system in the financial system?

  To transfer funds between accounts
• The efficiency of the payment system directly benefits the economy.


  True
• Financial intermediaries enable us to transform assets into money at a relatively low cost
• How do financial institutions enable risk diversification for savers?

  By making numerous loans
• Information asymmetry arises because borrowers know more about their quality than lenders.


  True
• The large size of financial intermediaries allows them to collect information at a lower average cost