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Questions and Answers
Which of the following is NOT a type of private banking institution?
Which of the following is NOT a type of private banking institution?
What is typically the biggest monthly expense for most people when buying a house?
What is typically the biggest monthly expense for most people when buying a house?
Which institution provides retirement income and medical care?
Which institution provides retirement income and medical care?
For what purpose do mortgage brokers primarily serve?
For what purpose do mortgage brokers primarily serve?
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Which of the following categories falls under Non-bank Financial Institutions?
Which of the following categories falls under Non-bank Financial Institutions?
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Which of the following is NOT considered a money market instrument?
Which of the following is NOT considered a money market instrument?
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What is one essential characteristic of a well-run financial market?
What is one essential characteristic of a well-run financial market?
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Which type of capital market instrument does not represent a claim on a business's profits?
Which type of capital market instrument does not represent a claim on a business's profits?
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Which of the following roles do financial institutions primarily play in the market?
Which of the following roles do financial institutions primarily play in the market?
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Which type of derivative instrument involves an agreement to buy or sell an asset at a predetermined price at a future date?
Which type of derivative instrument involves an agreement to buy or sell an asset at a predetermined price at a future date?
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What aspect of financial markets does government enforcement of rules primarily enhance?
What aspect of financial markets does government enforcement of rules primarily enhance?
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Which is a common feature of banker’s acceptance?
Which is a common feature of banker’s acceptance?
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What does the process of screening and monitoring borrowers aim to reduce?
What does the process of screening and monitoring borrowers aim to reduce?
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What is the primary difference between direct and indirect finance?
What is the primary difference between direct and indirect finance?
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What role do financial instruments play in the economy?
What role do financial instruments play in the economy?
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Which of the following does NOT describe a function of financial instruments?
Which of the following does NOT describe a function of financial instruments?
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What is a key characteristic of financial instruments that makes them enforceable?
What is a key characteristic of financial instruments that makes them enforceable?
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How does financial development relate to economic growth?
How does financial development relate to economic growth?
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What are financial markets primarily used for?
What are financial markets primarily used for?
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What defines an asset in financial terminology?
What defines an asset in financial terminology?
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What is a common use of financial instruments in the workplace?
What is a common use of financial instruments in the workplace?
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What is the primary purpose of financial markets?
What is the primary purpose of financial markets?
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Which of the following is NOT a feature of financial markets?
Which of the following is NOT a feature of financial markets?
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How do financial markets enhance economic efficiency?
How do financial markets enhance economic efficiency?
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What characterizes primary markets?
What characterizes primary markets?
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What is the function of risk sharing in financial markets?
What is the function of risk sharing in financial markets?
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What is the key role of liquidity in financial markets?
What is the key role of liquidity in financial markets?
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What does the maturity date of a debt instrument signify?
What does the maturity date of a debt instrument signify?
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Which of the following is a consequence of financial markets improving economic welfare?
Which of the following is a consequence of financial markets improving economic welfare?
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Which of the following describes shadow banks?
Which of the following describes shadow banks?
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What is a primary characteristic of depository institutions?
What is a primary characteristic of depository institutions?
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What role do finance companies typically fulfill?
What role do finance companies typically fulfill?
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How do pension funds function?
How do pension funds function?
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What is a key feature of securities firms?
What is a key feature of securities firms?
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What characteristics define government-sponsored enterprises?
What characteristics define government-sponsored enterprises?
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What effect did the relaxation of rules for traditional banks have on the financial system?
What effect did the relaxation of rules for traditional banks have on the financial system?
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Which statement correctly describes the investment behavior of hedge funds?
Which statement correctly describes the investment behavior of hedge funds?
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Study Notes
Introduction to Financial Systems
- The international financial system enables design, sale, and exchange of contracts with specific characteristics.
- Financing comes from markets (direct) and institutions (indirect).
- Indirect finance involves intermediaries like banks that facilitate loans, while direct finance involves borrowers selling securities directly to lenders.
Financial Instruments
- Financial instruments are legal obligations for one party to pay another party a specified amount under defined conditions in the future.
- They function as a means of payment and stores of value, similar to money.
- Essential for risk management; insurance against disability is vital for protecting earning capacity.
Financial Markets
- Financial markets are platforms for buying and selling financial instruments, acting as the economy's central nervous system.
- They ensure resource allocation, enhance economic efficiency, and lower transaction costs.
Roles of Financial Markets
- Provide liquidity, enabling easy buying and selling of instruments.
- Aggregate and share information about issuers, aiding in informed decision-making.
- Facilitate risk-sharing, allowing individuals to hedge against uncertainties.
Structure of Financial Markets
- Primary markets sell new financial instruments; secondary markets deal with reselling/trading instruments.
- Markets can be classified by trading methods: centralized exchanges or over-the-counter markets.
- Instrument types categorize markets as stores of value or risk transfer mechanisms.
Functions of Financial Markets
- Allow for fund transfers from those without investment opportunities to those with them.
- Improve economic welfare by enabling better timing of consumer purchases.
Debt and Equity Markets
- Debt instruments require issuers to pay back fixed amounts (interest and principal) at intervals until maturity.
- Maturity date is when the debt must be repaid.
Capital Market Instruments
- Include stocks, mortgages, bonds (corporate and convertible), and government securities.
- Derivative instruments comprise futures and options contracts.
Characteristics of Financial Markets
- Well-functioning markets maintain low transaction costs and share accurate information.
- Credibility in borrower promises is essential for market stability and investor protection.
Financial Institutions
- Institutions connect savers with borrowers, functioning as financial intermediaries (e.g., banks, insurance companies).
- Key roles include lowering transaction costs, reducing information asymmetries, and enhancing resource allocation efficiency.
Structure of Financial Institutions
- Divided into depository institutions (accept deposits, provide loans) and non-depository institutions (insurance companies, mutual funds).
- Banks, credit unions, and finance companies specialize in various financial services.
Types of Financial Institutions
- Depository institutions include commercial banks and savings institutions.
- Non-depository institutions encompass investment banks, insurance firms, pension funds, and hedge funds.
Philippine Financial System
- Categorized under "The New Central Bank Act" by Banko Sentral ng Pilipinas.
- Banking institutions include private banks (universal, commercial, thrift, rural) and government banks (e.g., Land Bank).
- Non-bank financial institutions include investment firms, credit unions, and government-sponsored entities like GSIS and Social Security System.
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Description
This quiz covers the fundamentals of financial markets, institutions, and instruments. You'll explore how these components interact within the international financial system to facilitate resource exchange. Test your understanding of direct and indirect financial resources.
