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Question 1

What is the Financial Sector?

Answer 1

The financial sector is the industry that provides financial services to individuals, businesses, and governments.

Question 2

What institutions do the financial sector include?
BIIC

Answer 2

Banks
Investment Firms
Insurance Companies
Credit Union

Question 3

What does the financial sector do?

Answer 3

The financial sector facilitates the flow of money between savers and borrowers, enabling access to capital, credit, and investment.

Question 4

What do government bodies do in terms of F.I?

Answer 4

Government bodies regulate financial institutions to ensure safe operations and consumer protection.

Question 5

What does the financial sector consist of?

Answer 5

Financial institutions
Financial instruments
A regulatory framework (rules and laws)

Question 6

What do financial intermediaries do?

Answer 6

Financial intermediaries act as a link between savers and borrowers, channeling funds from those with excess savings to those needing financing.

Question 7

Lending

Answer 7

Providing funds for governments, businesses, and individuals

Question 8

Why do governments borrow?

Answer 8

Governments borrow to finance projects (e.g., schools, hospitals).

Question 9

Why do businesses borrow?

Answer 9

Businesses borrow to invest in buildings and capital and to cover short-term expenses.

Question 10

Why do households borrow?

Answer 10

Households borrow for capital expenditure (e.g., house building), to purchase goods repaying loans later.

Question 11

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What are six characteristics of money?

Answer 11

Homogeneity
Perishibility
Durability
Divisibilty
Portablity
Acceptabilty

Question 12

Transactions motive

Answer 12

This refers to the amount of money held for daily use to carry out routine
transactions.

Question 13

Precautionary motive

Answer 13

This is where people often demand money as a precaution against an uncertain
future.

Question 14

Speculative motive

Answer 14

It accounts for all money held in excess of the transactionary and precautionary
motive.

Question 15

Liquidity

Answer 15

Liquidity refers to how quickly a financial asset can be used to buy a good or service.

Question 16

Commercial bank

Answer 16

A commercial bank is a financial institution that offers a range of banking services to individuals,
businesses, and governments.

Question 17

APO

What are three functions of the commercial banks?

Answer 17

Accept deposits

Provide loans

Offer payment services (debit cards, online banking)

Question 18

What is the Central Bank?

Answer 18

The central bank is a bank which is owned and operated by the state or government.

Question 19

MIS

What are three functions of a central bank?

Answer 19

Manages foreign reserves and national deb
Issues currency
Supervises commercial banks

Question 20

Finanial Instruments

Answer 20

Financial instruments are assets that can be traded on financial markets and are used to transfer funds
between investors and borrowers.

Question 21

Treasury Bills, Notes, and Bonds

Answer 21

• Issued by the government
• Bills = short term (≤1 year),
• Notes = medium term (1–5 years)
• Bonds = long term (>5 years)

Question 22

Corporate Bonds

Answer 22

Issued by companies to raise funds
Investors get paid interest, and principal is returned at maturity

Question 23

Municipal Bonds

Answer 23

Issued by local governments for infrastructure projects

Question 24

Equity Securities

Answer 24

Represent ownership in a company (e.g., shares)

Shareholders earn dividends and voting rights

Question 25

Certificates of Deposit (CDs)

Answer 25

Time deposits with banks Fixed interest over a set period

Question 26

Share and Stock Certificates

Answer 26

Proof of ownership of company shares Stock certificates usually represent more shares than individual share certificates

Question 27

Monetary Policy

Answer 27

This is a means of controlling the economy by changing the rate of interest (ROI)

Question 28

What does an increase in ROI mean?

Answer 28

An increase in the Rate of Interest in the economy means less money will be borrowed for spending. This leads to an increase in spending in the economy. This is referred to as an expansionary MP

Question 29

Contradictionary Monetary Policy

Answer 29

A decline in spending

Question 30

What does a decrease in ROI mean?

Answer 30

A decrease in the ROI means that it will be cheaper to borrow money to finance expenditure. This leads to an increase in spending in the economy. This is referred to as an expansionary MP

Question 31

Expansionary Monetary Policy

Answer 31

An increase in spending in the economy

Question 32

Reserve requirement Ratio

Answer 32

This refers to a fraction of deposits commercial banks are required to deposit to the Central Bank.

Question 33

Open Market Operations

Answer 33

This refers to the buying and selling of government securites that changes the amount of notes and coins in circulation.

Question 34

What are government securities?

Answer 34

The government of a country can borrow to finance its espenditure by issuing debt instruments.

Question 35

Treasury bills

Answer 35

Debt instruments issued by the state with a short term maturity of usually 3,6 or 12 months.

Question 36

Treasury notes

Answer 36

Debt instruments issued by the state with a medium term maturity

Question 37

Treasury bonds

Answer 37

Debt instruments issued by the state with a long term maturity usually in excess of 5 years.

Question 38

Fiscal Policy

Answer 38

A government uses FP when it deleberately changes the rate of taxation and the amount of government in order to bring about changes in the economy

Question 39

What is the main instrument of Fiscal Policy?

Answer 39

The National Budget

Question 40

What is the main form of government revenue?

Answer 40

Taxation

Question 41

What is a Contractionary Fiscal Policy?

Answer 41

Decreased government spending, higher taxes)

Question 42

Moral suasion

Answer 42

a type of monetary policy tool used by a country’s central bank to influence and guide the behavior of financial institutions, without using formal regulations or legal force.