HW assignment #1
Chapter 1: Questions to help you Study # 1-9
1) The financial system is the collection of markets, institutions, laws, regulations, and
techniques through which bonds, stocks, and other securities are traded. Through the
financial system, interest rates are determined and financial services are produced and
delivered around the world. It is important for us to understand how the global system of
financial institutions and markets work because it is one of the most important creations
of modern society.
Its primary task is to move scarce loanable funds from those who save to those
who borrow to buy goods and services and to make investments in new equipment and
facilities so that the global economy can grow and increase the standard of living enjoyed
by its citizens. The financial system determines both the cost and the quantity of funds
available in the economy, and what happens in this system has a powerful impact upon
the health of the global economy. The global financial system is an integral part of the
global economic system.
2) The principal link between the financial system and the economy is the financial market.
Economies around the world rely upon markets to carry out the complex task of
allocating scarce resources, making possible the production and sale of goods and
services. A market is an institution through which buyers and sellers meet to exchange
goods, services, and productive resources. This exchange determines what goods and
services will be produced and in what quantity. The financial markets channel savings to
those individuals and institutions needing more funds for spending than are provided by
their current incomes. The financial markets are the heart of the global financial system,
attracting and allocating savings and setting interest rates and the prices of financial
assets.
3) The principal function or role of the global financial system is to move scarce loanable
funds from those who save to those who borrow to buy goods and services and to make
investments in new equipment and facilities so that the global economy can grow and
increase the standard of living enjoyed by its citizens. The financial system determines
both the cost and quantity of funds available in the economy to pay for the thousands of
goods and services we purchase daily. The basic function of the global economic system
is to allocate scarce resources-land, labor, management skill, and capital-to their most
highly valued use, producing the goods and services needed by society. It generates a
flow of production in return for a flow of payments.
