Overview of the Financial System Quiz
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Questions and Answers

What are securities to the individuals or firms that issue them?

  • Investments
  • Liabilities (correct)
  • Assets
  • Stocks
  • Which of the following is an example of a direct finance instrument?

  • Mutual funds
  • Insurance policies
  • Bank deposits
  • Bonds (correct)
  • What role do financial intermediaries play in indirect finance?

  • Ensure funds remain idle
  • Invest funds in stocks
  • Transfer funds directly from lender-savers to borrower-spenders
  • Borrow funds from lender-savers to make loans to borrower-spenders (correct)
  • What is the primary route for moving funds from lenders to borrowers?

    <p>Indirect financing</p> Signup and view all the answers

    Which type of market involves the selling of new issues of securities to initial buyers by the borrowing entity?

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

    What defines the maturity of a debt instrument?

    <p>Years until the instrument's expiration date</p> Signup and view all the answers

    What is the main difference between money market and capital market?

    <p>The original maturity terms of securities traded</p> Signup and view all the answers

    How do financial intermediaries help in reducing transaction costs?

    <p>By developing expertise in lowering them and taking advantage of economies of scale</p> Signup and view all the answers

    Which concept refers to turning risky assets into safer assets for investors?

    <p>Asset transformation</p> Signup and view all the answers

    What problem is created by asymmetric information before a financial transaction occurs?

    <p>Adverse selection</p> Signup and view all the answers

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