The FSI provides key services to the economic system
(FSI = financial service industry) correct answers -Liquidity and transactions (trading systems for buying and selling)
-Matching individuals who have excess funds with those with those who need the them
(financial intermediation)
-Risk s...
the fsi provides key services to the economic syst
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The FSI provides key services to the economic system
(FSI = financial service industry) correct answers -Liquidity and transactions (trading systems for buying and selling)
-Matching individuals who have excess funds with those with those who need the them
(financial intermediation)
-Risk sharing (diversification)
Finanical services industry are different around the world
-in the USA, UK & Asia
-in EU correct answers Market based economy in USA, UK, ASIA
More bank-based economy in Euro area
Why are financial intermediaries useful correct answers Are useful because there are costs in the financial system 1. Transaction costs
2. Information costs
Transaction costs correct answers Costs of buying & selling a financial instrument
-Financial intermediaries reduced transaction costs by exploiting economies of scale
Information costs correct answers the costs that savers incur to determine the creditworthiness of borrowers and to monitor how they use the funds acquired
Asymmetric information phenomenon introduced 2 situations correct answers Adverse selection (before the transaction)
Moral hazard (after the transaction)
financial services industry (FSI) correct answers Financial institutions that help consumers, businesses, and governments manage money. These institutions can be depository or not.
CEHCKKECJA
Financialization process (list 5)
(the process by which financial institutions, markets, etc., increase in size and influence) correct answers -High profitability of banks
-Increase in lending
-Excess leverage and under-capitalization of banks compared to risk undertaken
-Systematic under-estimation and underpricing of risks -Internal reward & bonus structure
Factors leading to financial crisis correct answers -Excess leverage & under-capitalization
-Systematic underestimation and underprices of risks
-Internal reward structures created bias
Financial crisis main results for banks overall (list 5) correct answers -Non-performing loans (NPLs)
-Low profitability
-High cost-to income ratio
-Capital requirements increased
-Less resilient business models
Aftermath of crisis (list 4) correct answers -Increase regulation
-Falling profitability
-Update their risk management systems
-Faster/more complex market conditions
Innovation definiton correct answers Anything that is not presently being done, processes of introducing new things, new to your organization
What makes innovation possible (list 4) correct answers -Technology
-Competition
-Demand evolution (attitudes & behavior)
-Regulation
What does innovation regard? correct answers -Business models
-Channels
-Products
-Process
-Markets
-Experiences
Key factors considered useful to classify innovation correct answers -Risk are different
-Replicability
-Defensibility
The different degrees of innovation in FSI correct answers -Disruptive innovation
-Radical innovation
-Incremental innovation
5 characteristics of financial markets for analyzing necessity of government intervention correct answers -Negative externalities
-Asymmetric information
-Biased market participants
-Public goods
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