4.4 The Finanical Sector Flashcards

1
Q

What do financial markets do?

A
  1. Facilitate saving
  2. Lend to businesses and individuals
  3. They facilitate the exchange of goods & services
  4. Provide a market for equities
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2
Q

What is Asymmetric information?

A

When one party in a transaction has more information than the other resulting in inefficiency market outcomes

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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

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4
Q

What are market bubbles?

A

Occurs when prices for a stock or asset rise exponentially over a period of time

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5
Q

What are the key functions of central banks?

A
  • Lender of last resort
  • Governments bank
  • Regulate the banking industry
  • Monetary policy
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