Untitled Quiz

Financial markets channel funds from savers (lenders) to borrowers (spenders) to promote economic efficiency and increase production.

A firm can obtain funds through either debt or equity markets.

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

<p>Financial intermediaries act as a middleman between savers and borrowers, making the borrowing and lending process more efficient and accessible. They offer services such as lowering transaction costs, facilitating risk sharing, and mitigating information asymmetry.</p> Signup and view all the answers

<p>Transactions, precautionary, speculative</p> Signup and view all the answers

<p>Asymmetric information refers to a situation where one party in a transaction has more information than the other party.</p> Signup and view all the answers

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

<p>Credit rationing occurs when lenders restrict the amount or availability of loans to borrowers, even if those borrowers are willing to pay higher interest rates.</p> Signup and view all the answers

<p>A bank balance sheet lists the bank's assets (what the bank owns) and liabilities (what the bank owes), including capital (the bank's net worth). It demonstrates the fundamental principle that total assets must equal total liabilities plus capital.</p> Signup and view all the answers

<p>Reserves represent a portion of a bank's deposits that it is required to hold, either as cash in its vault or as deposits at the central bank. Reserves serve as a buffer to meet depositors' demands for withdrawals and provide a cushion against unexpected liquidity needs.</p> Signup and view all the answers

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

<p>Asset transformation is the process by which a bank takes deposits (its liabilities) and uses them to purchase income-generating assets, such as loans and securities, essentially transforming a short-term liability into a long-term asset.</p> Signup and view all the answers

<p>A bank manager's primary concerns include: ensuring adequate liquidity to meet depositors' demands, managing risk through diversification and loan quality assessment, acquiring funds at low cost, and maintaining an appropriate level of capital.</p> Signup and view all the answers

<p>To ensure the bank has sufficient funds to meet the demands of its depositors.</p> Signup and view all the answers

<p>Credit risk is the probability that a borrower will be unable to repay a loan in full, potentially resulting in a financial loss for the lender.</p> Signup and view all the answers

<p>Banks employ two primary strategies to manage credit risk: screening and monitoring. Screening involves assessing borrowers' creditworthiness before making a loan, while monitoring involves tracking borrowers' behavior and financial performance after the loan has been granted.</p> Signup and view all the answers

<p>A central bank serves as the primary monetary authority in an economy. It controls the money supply, sets interest rates, manages inflation, and supervises commercial banks to maintain financial stability and promote economic growth.</p> Signup and view all the answers

<p>Open market operations, discount lending, reserve requirements.</p> Signup and view all the answers

<p>Open market operations involve the central bank buying or selling government securities in the financial markets. Buying securities injects money into the economy, increasing the money supply and lowering interest rates. Selling securities removes money from the economy, decreasing the money supply and raising interest rates.</p> Signup and view all the answers

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

<p>Credit rationing refers to a situation where lenders become more cautious in their lending practices during financial crises, often restricting the availability of credit to borrowers, even those willing to pay higher interest rates.</p> Signup and view all the answers

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

<p>Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.</p> Signup and view all the answers

<p>A nominal anchor is a specific economic variable, such as the inflation rate or the money supply, that a central bank explicitly targets to maintain price stability and control inflationary expectations.</p> Signup and view all the answers

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

<p>The primary goal of monetary policy is to maintain price stability, which is a sustained low level of inflation, ensuring that the value of money remains relatively stable over time.</p> Signup and view all the answers

<p>Price stability, high employment, economic growth, stability of financial markets, interest rate stability, stability in foreign exchange markets.</p> Signup and view all the answers