Exam 1: Overview of the Financial System

An arrangement that consolidates small amounts of funds to satisfy the demand for large amounts is known as:

The Reserve Bank of Australia (RBA)controls Australia's financial system.

Which contracts can be used to manage financial risks?

Which of the following is NOT an advantage for a firm of using equity rather than debt financing?

Debt is often referred to as 'risk capital' because debt holders only have a residual claim on the firm's earnings.

Describe the rights of shareholders in a large company.

Information asymmetry arises where a contract distorts incentives to behave appropriately.

Australia has four financial markets that perform the flow-of-funds function - the money market, the bond market, the share market and the foreign exchange market.

What is an ADI? What services do they provide?

Which institutions took advantage of information asymmetry in the sale of sub-prime loans to investors in mortgage-backed securities?

Explain the principal source of funds to the Australian financial system and the returns to investors from supplying funds.

In the Australian financial system, financing is provided by:

Describe the institutions and markets within Australia's financial system.

Provide a summary of the main features of debt.

The financial authority that has responsibility for the protection of consumers, investors and creditors in Australia is:

The risk borrowers face of not being able to maintain the level of their debt is known as:

Explain the flaws in 'sub-prime' lending in the US and how it contributed to the GFC.

Identify the six functions performed by the financial system.

The sub-prime crisis became a financial crisis because of the collapse of the payment system.

'Sub-prime' lending refers to loans where the borrower does not meet the normal loan requirements, such as having the capacity to make repayments.