1. paraphrase 167
Complete paraphrasing of answers with changing of sentence structure +
NumbersAssignment Question(s):Q. 1. How does Financial System Coordinate Saving and
Investment? Explain in detail. [10 Marks]Q. 2. Discuss role play by Bank in the monetary
system? How do bank create money?Q. 3. Analyze and create T-account balance
sheets.Answer:Question 1 è Answer:Savers are those who tend to spend less on
consumption and save big portions of their incomes. They are willing to lend their money
and get a satisfying return on their savings. That means a huge financial resources are
available for investments. On the other hand, the borrowers are willing to borrow and
employ these savings in profitable investments and repay these funds later plus interest.
However, savers and borrowers cannot deal with each other directly as they don’t know
each other personally. In this case, saving, borrowing and investing activities would involve
higher risks. Therefore, the financial system evolved to solve that problem.The Financial
System is a group of institutions which works as a bridge between savers and borrowers.
These institutions can be classified into financial markets and financial
intermediaries.Financial markets are institutions, such as stock markets and bond markets,
through which savers can directly provide funds to borrowers by purchasing stocks or
bonds.Financial intermediaries are institutions, such as banks and mutual funds, which
indirectly help channel the savers’ funds to borrowers who are eager to make profitable
investments. On one hand, the banks accept deposits from the savers and promise to pay
them a specific interest rate for their savings with the possibility to withdraw their savings
at any time. On the other hand, these banks charge the borrowers higher interest rates in
order to cover the bankers’ profits and provide satisfying returns for the
savers.Question 2 è Answer:Banks can be classified into two types: Central Banks and
Commercial Banks.Central banks create money simply by printing fiat currency such as
dollars or euros or any other currency, and inject that money into the market by buying
treasury bonds. In addition, central banks have the authority to oversee the banking system.
Moreover, they can increase the interest rate and regulate the money supply in the market
by issuing bonds and selling them, just in case they wanted to decrease the money supply
circulated in the market. Or they can increase the money supply by buying treasury bonds
and lowering the interest rate.Commercial banks, on the other hand, create money through
lending borrowers and going through a process called Money Multiplier Effect. The central
bank sets a reserve ratio, which restricts the commercial banks and forces them to keep a
specific portion of the savers’ deposits as reserves and loan out the rest. In other words,
2. whenever a commercial bank accepts a deposit from a saver, the bank keeps a portion of
that deposit in its vaults and lend the rest of it. As a result, that amount, which was
deposited, will continue to multiply according to the reserve ratio set by the central
bank.Question 3è Answer:International Commercial BankAssets
LiabilitiesReserves$1000Loans $9000Deposits$10000The T-account balance sheet
mentioned above shows the resources ( assets ) and the obligations ( liabilities ) which
belong to the International Commercial Bank (CIB).CIB collected $10.000 deposits from
savers, which is an obligation over the bank.CIB kept 10% of these deposits as reserves
($1000) in order to cover customers’ requests of withdrawals.CIB lent $9000 to
investors, and the bank is expecting to collect these loans plus interest later on specific
dates.
![paraphrase 167
Complete paraphrasing of answers with changing of sentence structure +
NumbersAssignment Question(s):Q. 1. How does Financial System Coordinate Saving and
Investment? Explain in detail. [10 Marks]Q. 2. Discuss role play by Bank in the monetary
system? How do bank create money?Q. 3. Analyze and create T-account balance
sheets.Answer:Question 1 è Answer:Savers are those who tend to spend less on
consumption and save big portions of their incomes. They are willing to lend their money
and get a satisfying return on their savings. That means a huge financial resources are
available for investments. On the other hand, the borrowers are willing to borrow and
employ these savings in profitable investments and repay these funds later plus interest.
However, savers and borrowers cannot deal with each other directly as they don’t know
each other personally. In this case, saving, borrowing and investing activities would involve
higher risks. Therefore, the financial system evolved to solve that problem.The Financial
System is a group of institutions which works as a bridge between savers and borrowers.
These institutions can be classified into financial markets and financial
intermediaries.Financial markets are institutions, such as stock markets and bond markets,
through which savers can directly provide funds to borrowers by purchasing stocks or
bonds.Financial intermediaries are institutions, such as banks and mutual funds, which
indirectly help channel the savers’ funds to borrowers who are eager to make profitable
investments. On one hand, the banks accept deposits from the savers and promise to pay
them a specific interest rate for their savings with the possibility to withdraw their savings
at any time. On the other hand, these banks charge the borrowers higher interest rates in
order to cover the bankers’ profits and provide satisfying returns for the
savers.Question 2 è Answer:Banks can be classified into two types: Central Banks and
Commercial Banks.Central banks create money simply by printing fiat currency such as
dollars or euros or any other currency, and inject that money into the market by buying
treasury bonds. In addition, central banks have the authority to oversee the banking system.
Moreover, they can increase the interest rate and regulate the money supply in the market
by issuing bonds and selling them, just in case they wanted to decrease the money supply
circulated in the market. Or they can increase the money supply by buying treasury bonds
and lowering the interest rate.Commercial banks, on the other hand, create money through
lending borrowers and going through a process called Money Multiplier Effect. The central
bank sets a reserve ratio, which restricts the commercial banks and forces them to keep a
specific portion of the savers’ deposits as reserves and loan out the rest. In other words,](https://image.slidesharecdn.com/paraphrase167-230623112615-8226b474/85/paraphrase-167docx-1-320.jpg)
