2.4.4 The regulation of the financial system

• What is the financial system designed to facilitate?

  Transferring funds
• The financial system is primarily concerned with managing risk and allocating capital


  True
• The financial system includes financial institutions, financial markets, and financial instruments
• What is one key objective of financial system regulation?

  Prevent financial instability
• Financial regulators ensure stability by monitoring systemic risks and setting capital requirements

  True
• The financial system facilitates economic activity by efficiently allocating capital
• How do the components of the financial system enable investment and economic growth?

  By channeling funds
• Financial system regulation aims to achieve stability, efficiency, and protection


  True
• Financial regulators are responsible for overseeing and regulating the financial system
• What is one role of financial regulators in protecting consumers and investors?

  Enforcing regulations
• What are financial markets used for in the financial system?

  Trading financial instruments
• What are the three key components of the financial system?

  Financial institutions, markets, instruments
• Financial system regulation aims to ensure the financial system is stable, efficient, and protects consumers
• Match the regulatory measure with its purpose:

  Capital Requirements ↔️ Prevent Financial Instability

  Disclosure Requirements ↔️ Enhance Market Efficiency

  Consumer Protection Laws ↔️ Protect Consumers and Investors
• Central banks and prudential regulators ensure financial stability
• What is the purpose of capital requirements as a financial regulation?

  Ensure banks hold sufficient capital
• Disclosure requirements promote market efficiency by reducing information asymmetries.


  True
• The effectiveness of financial regulation can be evaluated based on its ability to achieve key objectives
• What is one ongoing challenge faced by financial regulators in promoting market efficiency?

  Keeping pace with innovation
• Continuous review and adaptation of the regulatory framework is necessary to maintain its effectiveness
• Examples of financial institutions include banks, credit unions, and insurance
• Financial instruments such as stocks, bonds, and mortgages represent financial value
• The components of the financial system collectively ensure efficient capital allocation and support economic growth.


  True
• What regulatory measures are used to prevent financial instability?

  Capital requirements, reserve ratios
• What are financial regulators responsible for?

  Overseeing and regulating the financial system
• Financial regulators include central banks, securities commissions, and specialized agencies.


  True
• Deposit insurance protects consumers by guaranteeing their bank deposits up to a certain limit
• What do consumer protection laws in the financial system aim to prevent?

  Unfair or abusive practices
• Consumer protection laws have eliminated all mis-selling and misconduct in the financial system.

  False