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</p> Signup and view all the answers

    What type of contract is a derivative based on?

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

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

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

    What distinguishes the primary market from the secondary market?

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

    How do depository institutions contribute to the economy?

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

    What is one way in which financial institutions reduce risk?

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

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

    <p>Government</p> Signup and view all the answers

    Why do depository institutions earn a profit?

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

    What is a potential disadvantage of globalization in financial markets?

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

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

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

    What is regulatory arbitrage in the context of globalization?

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

    What function does investment banking serve within universal banking?

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

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

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

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