#1
Which of the following is a primary function of financial intermediaries?
Providing liquidity
ExplanationFinancial intermediaries provide liquidity by matching savers and borrowers.
#2
What does the term 'market dynamics' refer to in finance?
Changes in supply and demand
ExplanationMarket dynamics encompass changes in supply and demand influencing prices and market behavior.
#3
Which of the following is a characteristic of a financial intermediary?
Providing loans to individuals
ExplanationFinancial intermediaries provide loans to individuals and businesses to allocate capital efficiently.
#4
What role do investment banks play in financial markets?
Facilitating trading of stocks and bonds
ExplanationInvestment banks facilitate the trading of stocks and bonds, acting as intermediaries between issuers and investors.
#5
What is the primary function of a commercial bank in financial intermediation?
Accepting deposits and granting loans
ExplanationCommercial banks primarily accept deposits from savers and provide loans to borrowers, facilitating the flow of funds.
#6
In financial markets, what is the term 'arbitrage' commonly associated with?
Exploiting price differences for profit
ExplanationArbitrage involves exploiting price differences for profit by simultaneously buying and selling assets in different markets.
#7
Which of the following is NOT considered a financial intermediary?
Stock exchange
ExplanationStock exchanges facilitate the trading of securities but do not directly intermediate between savers and borrowers.
#8
Which theory suggests that financial intermediaries exist because they can provide better risk management and information services than individuals acting alone?
The theory of financial intermediation
ExplanationThe theory of financial intermediation posits that intermediaries can offer superior risk management and information services compared to individual investors.
#9
What does the term 'leverage' mean in financial contexts?
Increasing the proportion of debt in a company's capital structure
ExplanationLeverage refers to using debt to amplify returns, often by increasing the proportion of debt in a company's capital structure.
#10
What is the role of securitization in financial intermediation?
Pooling assets to create new financial instruments
ExplanationSecuritization involves pooling assets to create new financial instruments, facilitating liquidity and risk management.
#11
What is the significance of the efficient market hypothesis (EMH) in financial theory?
It suggests that markets are always efficient and prices reflect all available information
ExplanationThe efficient market hypothesis posits that markets efficiently incorporate all available information into asset prices.