What are the primary roles of a financial system in an economy?

Financial systems allocate resources efficiently.

• Enhances resource distribution.

• Facilitates payment transactions.

• Offers risk management products.

Fill in the blank: Financial intermediaries primarily function to transfer funds from ___ to ___.

Surplus units to deficit units

Explain how financial markets contribute to economic development.

Financial markets boost economic development.

• Provide capital for businesses.

• Stimulate investment and growth.

• Enhance overall economic activity.

True or False: The capital market is intended for short-term financing needs.

False. The capital market is designed for long-term financing needs.

What distinguishes the money market from the capital market?

Money market vs. capital market.

• Money market: Short-term focus.

• Capital market: Long-term securities.

• Different maturity timelines explained.

Riddle: I am a market where short-term funds are traded and often involve treasury bills. What am I?

The money market

Identify the four main components of a financial market.

The four main components of a financial market are the money market, capital market, foreign exchange market, and credit market.

Fill in the blank: Pension funds are crucial for ___ as they pool resources to provide retirement benefits.

Accumulating savings for retirement

Short Answer: What is the role of financial services in the context of financial intermediaries?

Financial services aid asset management.

• Facilitates transactions efficiently.

• Provides investment advice strategically.

• Helps meet financial needs effectively.

How do financial instruments contribute to the functioning of financial markets?

Financial instruments facilitate market functions.

• They enable capital flow.

• Support investment opportunities.

• Represent claims on assets.

True or False: Financial institutions only include banks.

False. Financial institutions include banks, insurance companies, pension funds, and other entities that facilitate financial transactions.

What is the minimum reserve system in the context of currency note issuance?

Minimum reserve system enables note issuance.

• Supports currency stability.

• Requires backing by securities.

• Ensures liquidity in economy.

Riddle: I am an institution that helps manage risks for households by providing retirement income insurance. What am I?

A pension fund

Explain the significance of micro-finance in poverty reduction.

Micro-finance reduces poverty effectively.

• Access to credit empowers borrowers.

• Savings help manage financial risks.

• Improves quality of life sustainably.

Fill in the blank: A financial market acts as an intermediary between those who need money and those who want to ___ their surplus funds.

Invest