Financial Institutions and their Role in the Market

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Questions and Answers

What is the main purpose of a bond?

  • To trade cryptocurrency tokens
  • To exchange physical commodities
  • To speculate on exchange rates
  • To finance projects and operations (correct)

In the forex market, what is the most traded asset?

  • Cryptocurrency tokens
  • Foreign exchange (currency pairs) (correct)
  • Derivatives
  • Physical commodities

What distinguishes commodity markets from bond markets?

  • Commodity markets trade physical goods (correct)
  • Bond markets operate 24/7
  • Commodity markets involve trading stocks
  • Bond markets are decentralized

Which market is described as having a patchwork of independent online exchanges?

<p>Cryptocurrency market (A)</p> Signup and view all the answers

What type of contract is a derivative based on?

<p>Agreed-upon underlying financial asset or index (C)</p> Signup and view all the answers

What makes the forex market the most liquid market in the world?

<p>Cash is the most liquid asset in this market (D)</p> Signup and view all the answers

What is the primary function of financial markets according to the text?

<p>Offering up-to-date information about traded securities (B)</p> Signup and view all the answers

Which market segment involves borrowing medium and long-term funds?

<p>Primary market (C)</p> Signup and view all the answers

What distinguishes the primary market from the secondary market?

<p>Primary market involves initial issues of securities (C)</p> Signup and view all the answers

What is a key characteristic of the Over-The-Counter Market mentioned in the text?

<p>Decentralized market with electronic trading (B)</p> Signup and view all the answers

Why is the stock market considered a barometer for the overall economy?

<p>Allows buyers and sellers to interact and transact (D)</p> Signup and view all the answers

How does the secondary market contribute to making financial instruments more liquid?

<p>By reselling previously issued securities (C)</p> Signup and view all the answers

What is the main function of financial institutions according to the text?

<p>Providing safekeeping and access to payment system (A)</p> Signup and view all the answers

How do depository institutions contribute to the economy?

<p>By lending out the money saved by depositors (B)</p> Signup and view all the answers

What is one way in which financial institutions reduce risk?

<p>By pooling the savings of individuals (C)</p> Signup and view all the answers

Which entity maintains deposits of temporarily idle funds in commercial banks?

<p>Government (A)</p> Signup and view all the answers

Why do depository institutions earn a profit?

<p>By borrowing from depositors at high interest rates (D)</p> Signup and view all the answers

What type of accounts do business firms primarily use when depositing funds in financial institutions?

<p>Checking accounts (C)</p> Signup and view all the answers

What is a potential disadvantage of globalization in financial markets?

<p>Increased volatility (A)</p> Signup and view all the answers

What risk can be amplified as a result of the interconnectedness created by globalization?

<p>Systemic risk (D)</p> Signup and view all the answers

What is regulatory arbitrage in the context of globalization?

<p>Exploiting regulatory differences across jurisdictions (A)</p> Signup and view all the answers

Which type of bank combines the services of a commercial bank and an investment bank?

<p>Universal bank (D)</p> Signup and view all the answers

What function does investment banking serve within universal banking?

<p>Facilitating the issuance of securities (D)</p> Signup and view all the answers

In addition to commercial and investment banking, what other services may some universal banks offer?

<p>Insurance products (B)</p> Signup and view all the answers

What has been a major trend in the global market over recent decades?

<p>Increase in cross-border financial flows (B)</p> Signup and view all the answers

During the 1950s and 1960s, how did financial institutions in major industrial countries evolve?

<p>In relative isolation from external developments (C)</p> Signup and view all the answers

What was the impact of major international institutional agreements after World War II on world trade?

<p>Liberalized world trade but did little to free international capital movement (B)</p> Signup and view all the answers

How have financial markets changed in the past two decades?

<p>Become breeding grounds for rapidly evolving products (D)</p> Signup and view all the answers

What happened to the movement of international capital in the 1970s and 1980s?

<p>Dramatically increased (B)</p> Signup and view all the answers

How did information systems evolve in recent years?

<p>Became able to compute and store more data more rapidly (B)</p> Signup and view all the answers

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