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Questions and Answers
What is the main economic function of FIs?
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?
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?
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?
Why might households choose to hold cash over long-term securities?
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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 primary reason why household savers prefer to hold the financial claims issued by FIs rather than those issued by corporations?
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What is the purpose of financial intermediaries in the economy, according to the text?
What is the purpose of financial intermediaries in the economy, according to the text?
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What is the main function of FIs acting as a pure broker?
What is the main function of FIs acting as a pure broker?
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What is the primary reason why household savers prefer the financial claims issued by FIs over those issued by corporations?
What is the primary reason why household savers prefer the financial claims issued by FIs over those issued by corporations?
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What is the asset-transformation function of FIs?
What is the asset-transformation function of FIs?
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