2.7 The Financial Sector

• The financial sector facilitates the flow of funds between savers and borrowers.
• Banks accept deposits from savers and provide loans to borrowers.
• Arrange the financial markets by maturity length from shortest to longest:

  1️⃣ Money Markets

  2️⃣ Capital Markets
• The Financial Conduct Authority (FCA) regulates financial firms to protect consumers and maintain market integrity.


  True
• What does the financial sector facilitate between savers and borrowers?

  Flow of funds
• The financial sector is essential for managing financial risks.


  True
• Financial intermediaries improve the efficiency of the financial system.

  True
• What role do financial markets play in the economy?

  Allocate capital efficiently
• What are the benefits of financial regulation?

  Prevent financial crises
• Match the economic aspect with its impact from the financial sector:

  Inflation ↔️ Dual positive and negative

  Employment ↔️ Positive
• The central bank is a key component of the financial sector and oversees the banking system.


  True
• Match the financial intermediary with its key function:

  Banks ↔️ Accept deposits and provide loans

  Building Societies ↔️ Provide mortgages for home purchases

  Investment Banks ↔️ Underwrite and trade securities
• What are the key instruments traded in capital markets?

  Stocks, bonds, derivatives
• Banks accept deposits, provide loans, and offer payment services
• Order the types of financial intermediaries by their primary focus:

  1️⃣ Banks

  2️⃣ Building Societies

  3️⃣ Investment Banks
• Money markets deal with short-term lending and borrowing with maturities less than one year
• The Prudential Regulation Authority (PRA) supervises banks to ensure financial stability.


  True
• The financial sector can influence inflation through monetary policy.


  True
• Why is the financial sector crucial for macroeconomic stability?

  Promotes economic health
• What is the role of financial intermediaries in the financial sector?

  Facilitate fund flow
• Financial intermediaries improve the efficiency of the financial system by acting as a bridge between savers and borrowers.


  True
• The Prudential Regulation Authority (PRA) supervises banks and insurers to ensure their financial stability.
• Why is the financial sector essential for economic growth?

  Channels savings into investments
• Match the financial sector component with its key function:

  Investment Funds ↔️ Pool savings for investment in securities

  Capital Markets ↔️ Trade stocks, bonds, and other financial instruments

  Central Bank ↔️ Oversees the banking system and implements monetary policy
• Banks facilitate payments and money transfers
• Match the financial market with its key instrument:

  Capital Markets ↔️ Stocks

  Money Markets ↔️ Treasury bills
• The Financial Conduct Authority (FCA) regulates financial firms to protect consumers
• The financial sector supports job creation by providing capital for new projects