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Questions and Answers

What is the main task of the financial system in the process of production and distribution?

  • Increase transaction costs
  • Ignore transaction costs
  • Maintain transaction costs
  • Decrease transaction costs (correct)
  • What is the primary function of the financial system?

  • To issue money
  • To facilitate the allocation of economic resources (correct)
  • To manage risks
  • To provide public goods and social services
  • What are the two main segments of the financial system?

  • National and international financial systems
  • Market and public financial systems (correct)
  • Financial and non-financial systems
  • Public and private financial systems
  • What is the main objective of financial institutions?

    <p>Trading financial instruments</p> Signup and view all the answers

    What type of intermediaries redistribute financial instruments?

    <p>Passive intermediaries</p> Signup and view all the answers

    What is the role of central banks?

    <p>Creating money</p> Signup and view all the answers

    What are the four parts of a market financial system?

    <p>Financial instruments, financial markets, financial institutions, and rules</p> Signup and view all the answers

    What is the purpose of fiscal instruments?

    <p>To acquire and distribute public funds</p> Signup and view all the answers

    What type of financial institution issues money?

    <p>Central banks</p> Signup and view all the answers

    What is the main purpose of public financial instruments?

    <p>To cover deficit of public funds</p> Signup and view all the answers

    Study Notes

    Financial System

    • A system of interconnected rules and institutions that enables cash flows between different entities using money.
    • Provides services to the real sector, aiming to decrease transaction costs in production and distribution.

    Characteristics of the Financial Sector

    • Growing in contribution to GDP
    • Becoming more complicated and risk management-oriented
    • More competitive, global, and value-oriented
    • Increasingly important in corporate and personal decision-making
    • Financial prices and architecture are becoming more crucial for the economy

    Primary Function of the Financial System

    • Facilitate the allocation and deployment of economic resources in time and space, in an uncertain environment
    • Allocate capital and risk efficiently

    Functions of the Financial System

    • Clearing and settling payments
    • Pooling resources and subdividing shares
    • Transferring resources across time and space
    • Managing risk
    • Providing information
    • Dealing with incentive problems

    Segments of the Financial System

    • Market financial system: services to the real sector are provided by market mechanisms
    • Public financial system: services to the real sector are provided by public (state) decisions, providing public goods and social services

    Market Financial System

    • Four parts: financial instruments, financial markets, financial institutions, and rules connecting them
    • Financial instruments: contracts between parties regulating financial relationships
    • Financial markets: markets where transactions related to financial instruments take place
    • Financial institutions: firms whose main objective is trading financial instruments, with main assets being financial instruments
    • Rules: formal (legal) and non-formal

    Financial Institutions

    • Main types: passive and active intermediaries
    • Passive intermediaries: redistribute financial instruments (e.g., brokerage houses)
    • Active intermediaries: create financial instruments (e.g., insurance companies, investment funds, pension funds, commercial banks, investment banks)
    • Active intermediaries: create money (e.g., central bank, commercial banks)

    Public Financial System

    • Four parts: budgetary legal rules, fiscal instruments, public financial instruments, and fiscal institutions
    • Budgetary legal rules: rules for creating and implementing public budgets
    • Fiscal instruments: mechanisms for acquiring and distributing public funds
    • Public financial instruments: financial instruments issued to cover public fund deficits
    • Fiscal institutions: support the operation of the public financial system

    Public Budgets

    • Three types: state budget, local budget, and special funds budget
    • Composition of revenues and expenses of public sector institutions

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