Podcast
Questions and Answers
What distinguishes money markets from capital markets?
What distinguishes money markets from capital markets?
- Money markets include stocks.
- Only short-term debt instruments are traded in money markets. (correct)
- Capital markets are more liquid than money markets.
- Money markets deal with long-term securities.
Which of the following is NOT a money market instrument?
Which of the following is NOT a money market instrument?
- Commercial Paper
- Treasury Bills
- Certificates of Deposit
- Corporate Bonds (correct)
What is the primary function of financial markets?
What is the primary function of financial markets?
- To serve only large corporations
- To restrict the flow of money in the economy
- To channel funds from those who do not have productive use for them to those that do (correct)
- To track government spending only
What is one of the three main roles of financial intermediaries?
What is one of the three main roles of financial intermediaries?
What issue do financial intermediaries help to solve regarding asymmetric information?
What issue do financial intermediaries help to solve regarding asymmetric information?
How is interest rate typically expressed?
How is interest rate typically expressed?
What type of security is a bond considered to be?
What type of security is a bond considered to be?
Which of the following types of institutions are classified as contractual savings institutions?
Which of the following types of institutions are classified as contractual savings institutions?
What distinguishes Treasury Bills (T-bills) from other types of bonds?
What distinguishes Treasury Bills (T-bills) from other types of bonds?
What is a characteristic of a depository institution?
What is a characteristic of a depository institution?
If a T-bill has a face value of $100 and is sold for $90, what will be the return upon maturity?
If a T-bill has a face value of $100 and is sold for $90, what will be the return upon maturity?
What does the term 'asset transformation' refer to in the context of financial intermediaries?
What does the term 'asset transformation' refer to in the context of financial intermediaries?
Why is studying financial institutions and banking important?
Why is studying financial institutions and banking important?
Which instrument is likely to offer the highest level of liquidity?
Which instrument is likely to offer the highest level of liquidity?
Which of the following best describes a financial instrument?
Which of the following best describes a financial instrument?
What role do interest rates play in economic transactions?
What role do interest rates play in economic transactions?
What is a primary characteristic of a barter economy?
What is a primary characteristic of a barter economy?
What does the term 'double coincidence of wants' refer to?
What does the term 'double coincidence of wants' refer to?
How does money benefit trade compared to barter?
How does money benefit trade compared to barter?
What is an inefficiency associated with barter systems?
What is an inefficiency associated with barter systems?
Why does the introduction of money lead to increased economic growth?
Why does the introduction of money lead to increased economic growth?
Which of the following can limit trade opportunities in a barter economy?
Which of the following can limit trade opportunities in a barter economy?
What does money eliminate in trade that is a challenge in a barter system?
What does money eliminate in trade that is a challenge in a barter system?
What role does a medium of exchange play in an economy?
What role does a medium of exchange play in an economy?
What is the primary function of financial intermediaries?
What is the primary function of financial intermediaries?
Which of the following best describes 'FinTech'?
Which of the following best describes 'FinTech'?
Which of the following represents a service provided by digital banks?
Which of the following represents a service provided by digital banks?
What does the concept of bounded rationality imply about player decision-making?
What does the concept of bounded rationality imply about player decision-making?
What trend in fintech involves financial services operating without intermediaries?
What trend in fintech involves financial services operating without intermediaries?
In the context of financial markets, how do investors generally form their predictions?
In the context of financial markets, how do investors generally form their predictions?
Which of the following was NOT a trend in Fintech during the 2010s?
Which of the following was NOT a trend in Fintech during the 2010s?
What analogy does Keynes use to explain behavior in financial markets?
What analogy does Keynes use to explain behavior in financial markets?
What was the value of fintech deals in China in 2018 according to Accenture analysis?
What was the value of fintech deals in China in 2018 according to Accenture analysis?
What can result from the expectations and beliefs of investors in financial markets?
What can result from the expectations and beliefs of investors in financial markets?
Which of the following is NOT an emerging trend in Fintech?
Which of the following is NOT an emerging trend in Fintech?
What might a player declare if they believe all others will choose a larger number?
What might a player declare if they believe all others will choose a larger number?
What is a significant risk associated with financial innovation?
What is a significant risk associated with financial innovation?
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Study Notes
Understanding the Barter Economy
- Barter economy involves direct exchange of goods and services without money.
- Requires mutual desire for exchanged goods; both parties must want what the other offers.
- Double coincidence of wants poses a challenge, making transactions inefficient.
Limitation of Barter
- Double coincidence of wants necessitates specific conditions for trade, e.g., a farmer needing tradesman skills while having unwanted products.
- Limits trading opportunities and economic growth due to inefficiency in matching needs.
Introduction of Money
- Money acts as a universally accepted medium of exchange, bypassing barter limitations.
- Facilitates trade flexibility; allows transactions irrespective of direct need for goods being exchanged.
- Promotes economic growth by enhancing specialization and efficiency.
Financial Markets Overview
- Financial markets transfer funds from savers to those in need of capital, impacting individuals and businesses.
- Key areas of study include bond markets, interest rates, and stock markets.
Bonds and Interest Rates
- Bonds are debt securities ensuring periodic payments over defined timeframes.
- Interest rates represent borrowing costs, typically as a percentage; e.g., 4% on $100 results in $104 repayment.
Treasury Bills (T-bills)
- Short-term government securities sold at discounts; offer no interest.
- Example: A $100 T-bill can be sold for various lower prices ($90, $80, $50).
Money and Capital Markets
- Money markets focus on short-term debt instruments, while capital markets include long-term assets.
- Money markets are generally more liquid compared to capital markets.
Financial Intermediaries
- Financial intermediaries (e.g., banks) facilitate indirect financing, bridging lenders and borrowers.
- They lower transaction costs, improve risk sharing, and help manage asymmetric information.
Types of Financial Intermediaries
- Depository Institutions (e.g., banks, credit unions).
- Contractual Savings Institutions (e.g., life insurance, pension funds).
- Investment Intermediaries (e.g., mutual funds, hedge funds).
Financial Innovation
- Development of new financial products enhances market efficiency but can lead to failures.
- E-Finance represents the electronic delivery of financial services, improving access and convenience.
FinTech
- Refers to technological advancements in financial services, encompassing digital payments and asset management.
- Notable examples include PayPal, Bitcoin, and digital banks.
Future Trends in FinTech
- Emerging areas include Central Bank Digital Currencies (CBDCs) and Decentralized Finance (DeFi).
- Growth expected in AI and blockchain technologies and their applications in finance.
The China Factor
- China is the largest fintech market globally, with substantial investment growth ($25.5 billion in 2018).
Financial Market Behavior
- Market participants often predict trends based on expectations of others rather than fundamentals.
- This behavior can lead to stock market bubbles, where speculative dynamics overshadow intrinsic value.
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