Podcast Beta
Questions and Answers
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?
Which institution provides retirement income and medical care?
For what purpose do mortgage brokers primarily serve?
Signup and view all the answers
Which of the following categories falls under Non-bank Financial Institutions?
Signup and view all the answers
Which of the following is NOT considered a money market instrument?
Signup and view all the answers
What is one essential characteristic of a well-run financial market?
Signup and view all the answers
Which type of capital market instrument does not represent a claim on a business's profits?
Signup and view all the answers
Which of the following roles do financial institutions primarily play in the market?
Signup and view all the answers
Which type of derivative instrument involves an agreement to buy or sell an asset at a predetermined price at a future date?
Signup and view all the answers
What aspect of financial markets does government enforcement of rules primarily enhance?
Signup and view all the answers
Which is a common feature of banker’s acceptance?
Signup and view all the answers
What does the process of screening and monitoring borrowers aim to reduce?
Signup and view all the answers
What is the primary difference between direct and indirect finance?
Signup and view all the answers
What role do financial instruments play in the economy?
Signup and view all the answers
Which of the following does NOT describe a function of financial instruments?
Signup and view all the answers
What is a key characteristic of financial instruments that makes them enforceable?
Signup and view all the answers
How does financial development relate to economic growth?
Signup and view all the answers
What are financial markets primarily used for?
Signup and view all the answers
What defines an asset in financial terminology?
Signup and view all the answers
What is a common use of financial instruments in the workplace?
Signup and view all the answers
What is the primary purpose of financial markets?
Signup and view all the answers
Which of the following is NOT a feature of financial markets?
Signup and view all the answers
How do financial markets enhance economic efficiency?
Signup and view all the answers
What characterizes primary markets?
Signup and view all the answers
What is the function of risk sharing in financial markets?
Signup and view all the answers
What is the key role of liquidity in financial markets?
Signup and view all the answers
What does the maturity date of a debt instrument signify?
Signup and view all the answers
Which of the following is a consequence of financial markets improving economic welfare?
Signup and view all the answers
Which of the following describes shadow banks?
Signup and view all the answers
What is a primary characteristic of depository institutions?
Signup and view all the answers
What role do finance companies typically fulfill?
Signup and view all the answers
How do pension funds function?
Signup and view all the answers
What is a key feature of securities firms?
Signup and view all the answers
What characteristics define government-sponsored enterprises?
Signup and view all the answers
What effect did the relaxation of rules for traditional banks have on the financial system?
Signup and view all the answers
Which statement correctly describes the investment behavior of hedge funds?
Signup and view all the answers
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.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
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.
