Global Financial and Banking Systems Chapter 1

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Questions and Answers

What dual role does the government sector play in the market?

Both demander and supplier of funds. (correct)

Only a borrower of funds.

Only a supplier of funds.

Neither a borrower nor a lender.

What is the main role of financial intermediaries in indirect financing?

To facilitate negotiations between borrower and lender.

To provide grants to businesses without expectation of repayment.

To assume the risk and re-lend borrowed funds. (correct)

To directly lend money to the ultimate borrower.

How does the flow of funds benefit households and businesses in the economy?

It increases economic activity and strengthens operations. (correct)

It reduces competition among businesses.

It discourages international capital investments.

It decreases the availability of funds for borrowing.

Which of the following statements best describes direct financing?

It requires an agreement on terms between borrower and lender. Signup and view all the answers

What is the impact of financial institutions on household borrowing and lending?

They coordinate collective lending efforts among households. Signup and view all the answers

What is the significance of international capital and investment flows?

They facilitate cross-border capital movement. Signup and view all the answers

What challenge do borrowers face in direct financing according to the content?

They must put considerable effort into securing funds. Signup and view all the answers

In what way does the overseas sector contribute to Hong Kong's economy?

By being a borrower, provider of goods, and lender of funds. Signup and view all the answers

What role do global information providers like Bloomberg and Reuters serve in the financial market?

They provide detailed and real-time financial and market data. Signup and view all the answers

What are the two main aspects that industry associations facilitate in the banking and financial services sector?

Establishing quality standards and organizing educational seminars. Signup and view all the answers

How have government and regulators affected market participants since 2008?

By implementing stricter regulations that raise compliance costs. Signup and view all the answers

What type of support do supranational and multilateral agencies like the World Bank and IMF provide?

Funding, guarantees, and research assistance. Signup and view all the answers

Which of the following is NOT one of the functions of money?

Store of knowledge. Signup and view all the answers

What does the 'medium of exchange' function of money eliminate?

The 'double coincidence of wants' in bartering. Signup and view all the answers

Why might increasing compliance costs be a concern for market participants?

They can decrease overall profitability in the short term. Signup and view all the answers

Which of the following best describes the long-term goal of stricter regulations imposed by governments and regulators?

To stabilize and enhance the credibility of the financial system. Signup and view all the answers

What is one primary function of central banks?

Conducting the country's monetary policy through interest and exchange rates Signup and view all the answers

Which of the following is NOT typically a role of central banks?

Setting tax rates for individuals Signup and view all the answers

Which of the following central banks is responsible for the Euro zone?

European Central Bank Signup and view all the answers

What impact does FATCA have on foreign financial institutions?

They need to report their U.S. clients to the Internal Revenue Service Signup and view all the answers

How do central banks typically maintain financial system stability?

By supporting banks in crisis or financial distress Signup and view all the answers

Which significant international entity promotes cooperation among central banks?

Bank for International Settlements Signup and view all the answers

What is often a challenge faced by central banks regarding their operations?

Achieving complete independence from government influence Signup and view all the answers

What significant global regulatory focus has emerged alongside FATCA?

Stringent anti-money laundering and anti-tax evasion efforts Signup and view all the answers

What is the total number of licensed banks in Hong Kong as of 30 September 2022?

156 Signup and view all the answers

Which type of institution primarily has the authorization to engage in deposit-taking and providing checking accounts in Hong Kong?

Banks authorized by HKMA Signup and view all the answers

How many deposit-taking companies (DTCs) were registered in Hong Kong as of 30 September 2022?

12 Signup and view all the answers

Which of the following categories has the highest number of institutions in Hong Kong?

Licensed banks Signup and view all the answers

What electronic service is commonly provided by Hong Kong banks to enhance customer experience?

Internet banking Signup and view all the answers

Which statement accurately reflects the relationship between banks and other financial service providers in Hong Kong?

Banks are more likely to provide non-bank financial services than vice versa. Signup and view all the answers

What was a significant development in the banking sector in Hong Kong that started in 2004?

Launch of personal RMB business Signup and view all the answers

Which of the following statements is true regarding the cross-selling of financial products in Hong Kong?

Banks often cross-sell insurance schemes with investment elements. Signup and view all the answers

What is the role of the chairman in the senior management team?

To represent the board of directors and ensure management performance Signup and view all the answers

Which regulatory authority oversees banking in Hong Kong?

Hong Kong Monetary Authority (HKMA) Signup and view all the answers

What type of deposits can licensed banks accept according to the Banking Ordinance?

Current, savings, and time deposits of any amount and maturity Signup and view all the answers

What is the minimum capital requirement for restricted license banks (RLBs)?

HK$100 million Signup and view all the answers

Which of the following is NOT an authorized institution under the Banking Ordinance?

Investment firms Signup and view all the answers

What type of accounts can restricted license banks (RLBs) offer?

Only time deposits within certain limits Signup and view all the answers

How much is the minimum deposit RLBs can accept?

HK$500,000 or more Signup and view all the answers

Which of the following authorities is responsible for regulating insurance in Hong Kong?

Insurance Authority (IA) Signup and view all the answers

What type of financial products may banks in Hong Kong offer to corporate customers in RMB services?

Trade finance and RMB bonds Signup and view all the answers

What was a significant consequence of the global financial crisis of 2008 for Hong Kong banks?

A bank run at Bank of East Asia Signup and view all the answers

What action did HKMA take following public concerns over structured product sales?

Issued circulars covering rules on selling processes Signup and view all the answers

Which of the following banks acquired Wing Hang Bank in July 2014?

OCBC Signup and view all the answers

What type of consolidation have banks in Hong Kong experienced over the past decade?

Functional and geographical consolidation Signup and view all the answers

What growth model did Chinese banks like Bank of Communications adopt in Hong Kong?

Organic growth model by establishing branches Signup and view all the answers

Which of the following is NOT a result of the competitive environment in the Hong Kong banking industry?

Increase in regulatory restrictions Signup and view all the answers

What triggered public concern regarding the sale of certain financial products in Hong Kong?

Investor losses on structured products like Lehman minibonds Signup and view all the answers

Study Notes

Chapter 1: Global Financial and Banking Systems

Learning Outcomes: Upon completing this chapter, learners will understand the relationship between economic sectors and the financial system, the role of money and financial intermediaries in the financial system, major trends and developments in global banking and financial services, and the changing landscape of banking and financial services in Hong Kong and China.

List of Topics

Role of the Financial System in the Global Economy: This section covers supply and demand, economic sectors, flow of funds, international capital and investment flows, and participants in the global financial system.
Money and Banking System: This section covers the supply of money, functions of banking, the global banking business and central banks. It also examines banking and financial services in Hong Kong and China.
Chapter Summary: A concise overview of the chapter's key concepts.
Reference Summary: A list of relevant resources for further study.
Review Questions: Questions to assess understanding of the material.

1.1 Supply and Demand

Society must make choices about production, distribution, and consumption.
Supply and demand interact in markets to determine prices and quantities produced.
High prices incentivize production, while low prices incentivize consumption.
Market equilibrium represents a balance between supply and demand.

1.2 Economic Sectors

The economy consists of household, business, government and overseas sectors.
These sectors interact through demands and supplies of goods, services and capital flows.

1.3 Flow of Funds

The flow of funds is an important concept in understanding the global financial system.
It traces the movement of investments (e.g. savings, deposits) between different parties (e.g., households, businesses, banks).
Direct and indirect financing models are used for understanding how financial instruments are used.

1.4 International Capital and Investment Flows

Globalization of financial markets drives cross-border flows of capital.
Capital flows reflect investment decisions of both borrowers and lenders.
Capital flows affect financial stability and economic development.

1.5 Participants in the Global Financial System

Banks: Essential for channeling funds between borrowers and lenders.
Funds: Provide capital to various financial markets (equity, bond, hedge, and private equity).
Rating Agencies: Assess the creditworthiness of borrowers and issuers.
Information Providers: Provide information on markets, instruments and trading opportunities.

2.1 Supply of Money

Money functions as a unit of account, medium of exchange, store of value, and standard of deferred payment.
Money categories (M1, M2, M3) differ in their component assets, reflecting the degree of liquidity.

2.2 Functions of Banking

Banks facilitate financial intermediation, transferring funds between lenders and borrowers.
Banks reduce information asymmetry and transaction costs in capital markets.
Banks promote economies of scale and specialization.
Banks handle risk transfer and increase liquidity.

2.3 The Global Banking System

Globalization has resulted in widespread and intense competition among global banks.
Regulatory changes challenge banks' business model, leading to diversification strategies.
Interest rate normalization has affected both borrowers and lenders.

2.4 Central Banks

Central banks play a crucial role in regulating the financial system.
They oversee commercial banks and their operations (e.g., reserve requirements, capital adequacy).
Their roles include adjusting the money supply, controlling interest rates and responding to economic crises.

2.5 Bank Organization

Banks generally have front and back office functions.
Front office deals with customer interactions, while back office handles support functions.

2.6 Banking and Financial Services in Hong Kong

Hong Kong operates a unique three-tiered banking system consisting of licensed banks, restricted license banks and deposit-taking companies (DTCS).

2.7 Banking and Financial Services Industry in China

China's banking and financial services industry has expanded significantly, due to its economic growth.
There are various types of banks (e.g., commercial and policy banks) that serve different functions.
Regulations and interest rate liberalization impact the financial services industry.

3. Chapter Summary

This section provides a concise summary of the information in the study guide.

4. Reference Summary

Includes a listing of references used. (no detail available in the document provided)

5. Review Questions

Multiple choice questions to test understanding of the materials covered. (refer to the document provided for specific questions)

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Description

This quiz covers Chapter 1 of the Global Financial and Banking Systems course, focusing on the interconnectedness of economic sectors and the financial system. Learners will explore the role of money, banking, and key trends in global financial services, with a particular emphasis on Hong Kong and China. Test your understanding of these crucial concepts and their implications for the global economy.