Day 1 39

What is the main function of a financial system?

• Produce goods and services

• Facilitate the exchange of funds and capital allocation

• Control the money supply

• Eliminate financial risk

Financial institutions enhance capital allocation by:

• Encouraging people to save

• Providing a mechanism to transfer funds efficiently

• Printing more money

• Eliminating financial risk

A financial system at the global level includes:

• Central banks

• The International Monetary Fund (IMF)

• The World Bank

• All of the above

The primary function of financial markets is to:

• Provide employment opportunities

• Allocate capital efficiently

• Eliminate risk in the economy

• Prevent economic downturns

What is **financial intermediation**?

• The process of directly borrowing money from the government

• The process of transferring funds from savers to borrowers

• The elimination of credit risk

• A way to create new money

A key risk that financial institutions face is:

• Operational risk

• Credit risk

• Market risk

• All of the above

Which of the following is **not** a function of money?

• Store of value

• Medium of exchange

• Unit of account

• Source of wealth

The money supply is linked to:

• Economic growth

• Inflation

• Interest rates

• All of the above

Which of these is NOT a method of payment?

• Commodity money

• Checks

• Electronic payments

• Barter

The liquidity spectrum refers to:

• A) The level of security in financial transactions

• B) How easily an asset can be converted into cash

• C) Government intervention in financial markets

• D) The volatility of stock prices