What do financial intermediaries do

Reference no: EM133201661

Assignment:

ANSWERS TO ALL QUESTIONS MUST BE TYPED.

1. What do financial intermediaries do and how do they promote efficiency? Discuss.

2. How can the adverse selection problem explain why you are more likely to make a loan to a family member than to a stranger? Discuss; start by defining the adverse selection problem.

3. List 3 money market instruments and 3 capital market instruments.

4. Read the article "Banks: At the Heart of the Matter" posted on iLearn, and then answer the questions below. Your answers must use the information from the article (not general answers or googled online, etc.).

a. Discuss the many different ways that banks can generate funds (as discussed in the article).

b. What are the 3 important roles of banks specifically mentioned in the article (do not discuss bank's role in monetary policy transmission, that is in part c).

c. We know that one of the most important functions of Central Banks (the FED in US) is Monetary Policy. However, commercial banks also play a role in the transmission of monetary policy. Discuss how banks effect the quantity of money in the economy and how they can contribute to a "credit crunch".

d. What does the article say about bank failures? Beyond the adverse effect on the bank itself, what are the "broader ramifications"?

e. According to the article, what are the 3 primary vulnerabilities of a bank? Discuss.

f. The financial industry is the most heavily regulated industry. Why is there a need for regulation in the financial sector? Discuss broadly.

Reference no: EM133201661

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