LESSON 1 Savings and the Financial System

What is the role of savings in the financial system?

• To increase consumption

• To reduce the need for financial intermediaries

• To provide funds for borrowers

• To decrease economic growth

What is a financial asset?

• A form of government bond

• A claim on the property and income of the borrower

• A type of savings account

• A type of physical property

Which of the following is NOT a financial intermediary?

• Credit Unions

• Finance Companies

• Consumers

• Banks

What is the main purpose of a finance company?

• To provide life insurance

• To make loans directly to consumers

• To manage pension funds

• To accept deposits from consumers

What is the premium in a life insurance policy?

• The amount paid out upon death

• The interest earned on the policy

• The periodic fee paid by the insured

• The total value of the policy

What is diversification in investment?

• Spreading funds over a wide variety of investments

• Investing only in high-risk assets

• Avoiding all types of financial assets

• Investing all funds in one stock

What happens when people save money?

• They increase their immediate consumption

• They decrease economic growth

• They make funds available for others to use

• They reduce the funds available for others

What is a certificate of deposit (CD)?

• A type of savings account

• A document showing an interest-bearing loan to a bank

• A form of government bond

• A type of credit card

What is the role of financial intermediaries?

• To decrease the availability of financial assets

• To collect funds from savers and loan them to borrowers

• To increase the interest rates on loans

• To reduce the need for savings

What is the importance of consistency in investment?

• Investing large amounts irregularly

• Investing only in high-risk assets

• Investing consistently over long periods

• Avoiding all types of investments