WorksheetsOVERVIEW CHAPTER 2
Total questions: 10
Worksheet time: 5mins
what is the main function of a financial market ?
to collect taxes from the public
to channel funds from savers to borrowers
to control inflation
to print money
in direct finance, borrowers obtain funds by :
borrowing from banks
selling securities directly to lenders
depositing money into savings accounts
taking government subsidies
what is the main difference between direct and indirect finance ?
type of interest rate charged
type of borrower involved
length of loan maturity
existence of financial intermediaries
why are financial intermediaries important in the economy ?
they increase transaction costs
they help avoid taxes
they reduce transaction costs and share risks
they only serve the government
what is meant by "economies of scale"?
higher cost per transaction as size increases
reduction in transaction cost per dollar as the size of transactions increases
expansion of businesses to multiple countries
increase in production cost with output
risk sharing by financial intermediaries is also called:
asset transformation
moral hazard
adverse selection
market fluctuation
what does assymetric information mean?
all parties have equal knowledge
one party knows more information than the other
information is freely available to everyone
both parties refuse to share information
adverse selection occurs:
after the loan agreement is made
when both parties share equal risk
before the transaction takes place
only in government borrowing
what is a conflict of interest in financial institutions?
when a bank refuses to give loans
when an institution's multiple roles cause competing objectives
when an investor buys share in two companies
when a company pays too much dividend
which of the following is NOT a type of financial intermediaries in Malaysia?
commercial banks
insurance companies
investment banks
manufacturing companies
