4.4 The Finanical Sector Flashcards
1
Q
What do financial markets do?
A
- Facilitate saving
- Lend to businesses and individuals
- They facilitate the exchange of goods & services
- Provide a market for equities
2
Q
What is Asymmetric information?
A
When one party in a transaction has more information than the other resulting in inefficiency market outcomes
3
Q
What is moral hazard?
A
When an economic agent has an incentive to increase risks because if they fail someone else will face the consequences
4
Q
What are market bubbles?
A
Occurs when prices for a stock or asset rise exponentially over a period of time
5
Q
What are the key functions of central banks?
A
- Lender of last resort
- Governments bank
- Regulate the banking industry
- Monetary policy