University:
Central Michigan University
Course:
ECO 306 | Money and Banking
Academic year:

2021
Views:

315

Pages:

1
Author:

Prince Sampson

Section A Answer the question Question 1 Typically the central bank is responsible for overseeing the monetary system of a nation, with price stability as a main aim. The other goals of the Central Bank may include high employment, economic growth, financial market stability, and interest rate and foreign exchange stability. These goals can be achieved by controlling the money supply process. Discuss how and why the central bank can influence the money supply process to help to achieve its goals (use graphs, tables and T-accounts). Section B Answer one question Question 2 Effective functioning of the financial system is vital for a healthy economy. Therefore, it is important to understand how the financial system operates. Explain how the financial system works, with emphasis on the financial instruments and functions of the financial markets and institutions. Question 3 Banks mediate between savers and borrowers; however, they are heavily regulated in this mediation. In addition, asymmetric information is not a severe problem in the current financial environment. Therefore, there is a basis for the emergence of money markets. Define what is meant by a money market, and discuss its purpose and the instruments traded on the money market. Question 4 a) Define in detail what is meant by a bond market, and discuss its purpose and the instruments traded on such a market. b) In the context of a bond market, explain the theory of asset demand and the liquidity preference framework.

Money and Banking Exam Answers

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