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Questions and Answers
What is capital in the context of economics?
What is capital in the context of economics?
What is the main function of financial institutions like banks?
What is the main function of financial institutions like banks?
What is the term for the activity of banks that facilitate the transfer of finance?
What is the term for the activity of banks that facilitate the transfer of finance?
What is the term for the money that people with excess funds put into banks?
What is the term for the money that people with excess funds put into banks?
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What is the purpose of people who face a shortage of money going to banks?
What is the purpose of people who face a shortage of money going to banks?
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What is one of the topics that will be discussed in relation to financial institutions?
What is one of the topics that will be discussed in relation to financial institutions?
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What is the primary role of a financial intermediary?
What is the primary role of a financial intermediary?
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What is one of the benefits of financial intermediaries to depositors?
What is one of the benefits of financial intermediaries to depositors?
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What is the term for the transfer of funds from surplus spending units to deficit spending units?
What is the term for the transfer of funds from surplus spending units to deficit spending units?
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What is the primary reason people borrow money from financial intermediaries?
What is the primary reason people borrow money from financial intermediaries?
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What is the analogy used to describe the importance of finance in an economy?
What is the analogy used to describe the importance of finance in an economy?
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What is the benefit of financial intermediaries to the economy?
What is the benefit of financial intermediaries to the economy?
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What is the role of financial intermediaries in facilitating economic transactions?
What is the role of financial intermediaries in facilitating economic transactions?
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What is the term used to describe the ability to purchase goods and services?
What is the term used to describe the ability to purchase goods and services?
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Study Notes
Factors of Production
- Capital is one of the basic factors of production in economics.
Definition of Capital
- Capital is the amount of money a producer pays for other factors of production (labor, land, and entrepreneur) used in the production process.
Role of Banks in Financial Intermediation
- Banks are financial institutions that facilitate the transfer of finance from those who have excess funds to those in need.
- People with excess money save by depositing it in banks.
- Those who need money can borrow from banks in the form of loans, following the bank's lending procedures.
Financial Intermediation
- The activity of banks is an example of financial intermediation.
Financial Institutions and Markets
- Banks and other financial intermediaries will be discussed in this unit, including:
- Introduction to financial intermediaries
- Introduction to financial markets
- Financial institutions
- Banking and non-banking financial institutions
Historical Development of Banking in Ethiopia
- The historical development of the banking sector in Ethiopia will be explored.
Electronic Banking and Indigenous Institutions
- E-banking (electronic banking) will be discussed.
- Indigenous financial institutions in Ethiopia, such as "ikub" and "iddir", will be explored.
Financial Intermediaries
- A financial intermediary is an entity that acts as a middleman between two parties in a financial transaction, such as a commercial bank.
- Financial intermediaries offer benefits to consumers, including safety, liquidity, and economies of scale in banking and asset management.
Role of Financial Intermediaries
- They mediate between providers of financial capital (with excess money) and users of financial capital (with a shortage of money).
- Financial intermediation is the transfer of funds from surplus spending units to deficit spending units through financial intermediaries.
Benefits of Financial Intermediaries
For Depositors
- Financial intermediaries provide safety, ensuring depositors' money is free from risk of loss.
- Depositors earn interest on their saved money.
For Borrowers
- Financial intermediaries provide loans to borrowers, who are known as investors.
- Borrowers use loans to finance investments (production).
- Financial intermediaries charge borrowers annual interest on borrowed money.
- Increased borrowing enables increased investment, which is beneficial for the economy.
Importance of Finance
- Finance is essential for an economy to function, just like blood circulation is essential for the human body.
- Finance enables individuals to buy their day-to-day needs, as ability to pay is a component of demand.
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Description
Learn about the basics of capital in economics, including its definition and role in the production process. Understand how banks facilitate financial intermediation.
