Question 1

Discuss the major macro benefits of financial intermediaries. What role does the government have in the credit allocation process?

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Question 2

Discuss the benefits to funds suppliers of using a financial intermediary asset transformer in place of directly purchasing claims such as stocks or bonds. What is the major disadvantage?
What is the downside of putting your money in an intermediary?

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Question 3

What have been the major factors contributing to growth in the foreign financial markets?

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Question 4

What determines the price of financial instruments? Which are riskier,capital market instruments or money market instruments? Why?

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Question 5

How can brokers and dealers make money? Which activity is riskier? Why?

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Question 6

How can using indirect finance rather than direct finance reduce agency costs associated with monitoring funds demanders?

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Question 7

You are a corporate treasurer seeking to raise funds for your firm. What are some advantages of raising funds via a financial intermediary (FI)rather than by selling securities to the public?

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Question 8

What does an asset transformer do? Why is asset transformation a risky activity?

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Question 9

Explain how the credit crunch originating in the mortgage markets hurt financial intermediaries' attempts to use diversification and monitoring to limit the riskiness of their loans and investments while offering more liquid claims to savers.

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Question 10

How can a depository intermediary afford to purchase long-term risky direct claims from funds demanders and finance these purchases with safe,liquid,short-term,low-denomination deposits? What can go wrong in this process?

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Quiz 1: Introduction