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Topic 1 - BANK3011

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Questions and Answers

What is the main economic function of FIs?

To monitor household investments

To facilitate fund flows between households and corporations (correct)

To issue securities to households

To generate excess savings

Why is it likely that each household would prefer to leave monitoring to others in an economy without FIs?

Corporations are too risky to invest in

Households do not have enough information to monitor corporations

Monitoring actions are too expensive for households to undertake (correct)

Households do not have enough savings to invest in corporations

What is the likely outcome of a lack of monitoring in an economy without FIs?

Increased attractiveness and increased risk of investing in corporate debt and equity

Decreased attractiveness and reduced risk of investing in corporate debt and equity

Increased attractiveness and reduced risk of investing in corporate debt and equity

Decreased attractiveness and increased risk of investing in corporate debt and equity (correct)

Why might households choose to hold cash over long-term securities?

To finance consumption expenditures in the near future Signup and view all the answers

What is the primary reason why household savers prefer to hold the financial claims issued by FIs rather than those issued by corporations?

FIs provide liquidity services, which allow savers to easily convert their financial claims into cash Signup and view all the answers

What is the purpose of financial intermediaries in the economy, according to the text?

To intermediate between the household and corporate sectors Signup and view all the answers

What is the main function of FIs acting as a pure broker?

Providing information and transaction services Signup and view all the answers

What is the primary reason why household savers prefer the financial claims issued by FIs over those issued by corporations?

Lower monitoring costs Signup and view all the answers

What is the asset-transformation function of FIs?

Purchasing primary securities Signup and view all the answers

Topic 1 - BANK3011

Choose a study mode

Podcast

Questions and Answers

What is the main economic function of FIs?

Why is it likely that each household would prefer to leave monitoring to others in an economy without FIs?

What is the likely outcome of a lack of monitoring in an economy without FIs?

Why might households choose to hold cash over long-term securities?

What is the primary reason why household savers prefer to hold the financial claims issued by FIs rather than those issued by corporations?

What is the purpose of financial intermediaries in the economy, according to the text?

What is the main function of FIs acting as a pure broker?

What is the primary reason why household savers prefer the financial claims issued by FIs over those issued by corporations?

What is the asset-transformation function of FIs?

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