4.4.2 Market Failure_Financial Markets 4.4.3 Role Central Banks

Information asymmetry refers to a situation...

• where one party in a transaction has no information

• where one party in a transaction has less information than another

• where one party in a transaction has more information than another

An externality refers to...

• a by-product of production or consumption which affects a third party (positively or negatively)

• pollution, congestion and financial mis-selling

• a variable over which the government has no control

• a policy used to correct a market failure

Moral Hazard occurs where...

• an economic agent takes limited risks in the knowledge that they will be profitable.

• an economic agent takes excessive risks in the knowledge that they are not insured or the government will not protect them from any damages which arise as a result of taking those risks.

• an economic agent takes no risks in the knowledge that they are uninsured or the government will not protect them from any damages which arise as a result of taking risks.

• an economic agent takes excessive risks in the knowledge that they are insured or the government will protect them from any damages which arise as a result of taking those risks.

Which of the following is NOT a feature of speculation in financial markets?

• herding behaviour

• asset price bubbles

• profit

• arbitrage

Market rigging might involve which of the following? (Choose more than one option)

• Collusion

• Insider trading

• Price fixing

• Fair competition

Some investment banks are so huge they pose systemic risks to the global financial system. A systemic risk refers to...

• the possibility that an event at a financial institution could trigger severe instability or collapse an entire industry or economy.

• the possibility that an event at a financial institution could allow for greater growth of an entire industry or economy.

• the possibility that an event at a financial institution could help increase the value of assets for investors.

• a situation where an economic agent takes excessive risks in the knowledge that they are insured or the government will protect them from any damages which arise as a result of taking those risks.

Which of the following is NOT a function of a Central Bank?

• Issue notes and coins

• Ensure financial stability

• Lender of last resort to government and financial institutions

• Implement fiscal policy

Which committee of the Bank of England is responsible for identifying, monitoring and reducing systemic risks to the financial system?

• Financial Policy Committee

• Prudential Regulatory Authority

• Financial Conduct Authority

Which committee of the Bank of England is responsible for promoting good practice and setting standards for operations for individual firms?

• Financial Policy Committee

• Prudential Regulatory Authority

• Financial Conduct Authority

Which committee of the Bank of England is responsible for protecting consumers from unfair practices?

• Financial Policy Committee

• Prudential Regulatory Authority

• Financial Conduct Authority