1. What are the economic functions that financial intermediaries perform that benefit society? In your answer, discuss the relationship of financial intermediaries and financial markets to the savings-investment process within an economy and to each other. As part of your discussion provide an analysis of the differences in preferences among economic agents as an explanation for the wide variety of primary and secondary securities found in financial markets. Be sure to explain how depository intermediaries, like banks, differ from other financial institutions such as investment banking firms or securities brokerage companies, and how financial intermediaries profit from the transformation of primary securities into secondary claims. Carefully, DEFINE YOUR TERMS.
2. Banks and other depository institutions make loans, invest in government securities, buy and sell federal funds, and accept deposits with a wide spectrum of maturities and with many payable on demand. Furthermore, depository institutions are the principal repositories of the public's liquid assets and many of these institutions' liabilities are considered a means of payment (money).
(a) Briefly discuss the risks facing these institutions within the context of how these institutions can have such a wide variety of assets and liabilities and still maintain their ability to make illiquid loans, meet deposit withdrawals on demand, and make profits for their shareholders. Within this context, discuss the effect of different yield curve structures (upward sloping, downward sloping, or flat) on the profitability and riskiness of banks choices of loans, investments, and liabilities (deposits).
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1. What are the economic functions that financial intermedia.docx
1. 1. What are the economic functions that financial intermediaries
perform that benefit society? In your answer, discuss the
relationship of financial intermediaries and financial markets to
the savings-investment process within an economy and to each
other. As part of your discussion provide an analysis of the
differences in preferences among economic agents as an
explanation for the wide variety of primary and secondary
securities found in financial markets. Be sure to explain how
depository intermediaries, like banks, differ from other
financial institutions such as investment banking firms or
securities brokerage companies, and how financial
intermediaries profit from the transformation of primary
securities into secondary claims. Carefully, DEFINE YOUR
TERMS.
2. Banks and other depository institutions make loans, invest in
government securities, buy and sell federal funds, and accept
deposits with a wide spectrum of maturities and with many
payable on demand. Furthermore, depository institutions are the
principal repositories of the public's liquid assets and many of
these institutions' liabilities are considered a means of payment
(money).
(a) Briefly discuss the risks facing these institutions within the
2. context of how these institutions can have such a wide variety
of assets and liabilities and still maintain their ability to make
illiquid loans, meet deposit withdrawals on demand, and make
profits for their shareholders. Within this context, discuss the
effect of different yield curve structures (upward sloping,
downward sloping, or flat) on the profitability and riskiness of
banks choices of loans, investments, and liabilities (deposits).
