1.1 Role of the financial system

Question 1

Functions of the financial system

Answer 1

Goal: transform financial capital into real capital

How?
1. collect capital not needed for consumption
2. bring together supply and demand
3. help the allocation of capital to the most productive use

Question 2

2 main tasks of capital markets:

Answer 2

risk and capital allocation


Question 3

benefits of financial markets

Answer 3

(1) Buyers and sellers are brought together at a low cost

(2) Information costs associated with investing is reduced

(3) Time and cost to trade is minimised —> liquidity is adequate and price continuity is promoted.


Question 4

Growing capital markets over the past years, largely due to…

Answer 4

pension system; plus more institutional investors