Ch.10 Endogenous Risk

Question 1

Compare and contrast Endogenous and Exogenous Risk.

Answer 1

Endogenous Risk: Risks coming from the system amplification of exogenous shocks.

Exogenous Risk: Shocks arriving from outside of the financial system.

Question 2

What are two important roles of prices in financial systems?

Answer 2

1. Prices reflect fundamental characteristics of their product.
2. Prices reflect an imperative for action.

Question 3

What is one market mechanism which can amplify financial problems?

Answer 3

Upward sloping demand curve due to leverage constraints. Assets that decrease in price concur with lower demand.

Question 4

There might be other stuff here, but questions are hard to formulate