29 Questions
What is the primary purpose of the financial system according to the passage?
To facilitate the flow of funds between surplus and deficit units
Which of the following is NOT mentioned in the passage as a type of deficit unit that requires funds?
Investors
According to the passage, what is the primary factor that determines how the financial system allocates capital?
The returns paid by borrowers
What is the main reason that surplus units provide funds according to the passage?
To earn a return on their investments
Which of the following is NOT mentioned in the passage as a type of surplus unit that provides funds?
Venture capitalists
According to the passage, what is the primary purpose of the financial system in allocating capital?
To channel funds to their most beneficial use
What is the main function of a trading platform in the secondary market?
To organize the exchange of securities for payment
In which type of secondary market would Investor A need to go directly to an individual dealer to get a quote?
OTC - Quote Driven
What distinguishes trading arrangements organized by securities exchanges from OTC trading arrangements?
Trading between dealers instead of broker-client arrangements
How does a quote driven market, like OTC, differ from an order driven market like Securities Exchanges?
In a quote driven market, the dealer gives a quote, while in an order driven market, the buyer sets the price.
Why did trading shift from open outcry to computer-based systems in secondary markets?
To enhance efficiency and speed of trading
Which type of market is predominantly for bonds and money markets and involves direct financing without orders?
Over the Counter (OTC) - Quote Driven
What is the main characteristic of a price bubble according to the text?
Prices exceed fair values and are followed by a sharp correction
What does the text suggest is a key driver of price bubbles?
Irrational exuberance and distorted expectations among traders
What is the relationship between corporate profits and share prices during bull markets?
The increase in share prices is not fully explained by the growth in corporate profits
What is the key difference between bull and bear markets according to the text?
Bull markets are characterized by rising prices, while bear markets are characterized by falling prices
What is the text's implication about the efficiency of financial markets?
Financial markets are sometimes inefficient, as evidenced by price bubbles
What is the main purpose of the pooling of funds mentioned in the text?
To overcome the incompatible wants of surplus and deficit units
What is the role of central banks in promoting financial system stability according to the text?
Central banks act as the 'lender of last resort' to solvent but illiquid banks
Which of the following is NOT mentioned in the text as a key aspect of financial system stability?
Ensuring the profitability of banks and other financial institutions
Which type of financial institution is dominant in terms of total assets in Australia?
Pension/superannuation funds
What is the main purpose of the international supervision guidelines mentioned in the text?
To establish consistent supervision arrangements across countries
What is the primary responsibility of the Reserve Bank of Australia (RBA) according to the text?
To promote stability in Australia's financial system
What is the primary purpose of financial systems mentioned in the text?
To provide access to accurate information and ensure fair and efficient decision-making for all parties.
What is the main role of banks in the financial system?
Banks play a crucial role in pooling funds from individual suppliers and allocating them to different borrowers or investments.
Which of the following is identified in the text as an important factor for increasing the efficiency and competitiveness of the financial system?
The emergence of new and reliable financial instruments, services, and operating systems.
What is the key benefit of new technology mentioned in the text?
New technology provides new investment opportunities for organizations.
Which of the following financial instruments is mentioned in the text as being less efficient and more prone to fraud compared to newer options?
Checks
What is the main purpose of pooling funds from individual suppliers mentioned in the text?
To achieve economies of scale and efficiently allocate funds from surplus to deficit units.
Learn about how the financial system arranges the supply of funds and allocates them to users based on returns and risk. Understand the role of surplus units and deficit units in the process.
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