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Chapter 2 The Financial System

Chapter Objectives

By the end of this chapter, students should be able to:

  1. Critique cultural stereotypes of financiers.
  2. Describe the financial system and the work that it performs.
  3. Define asymmetric information and sketch the problems that it causes.
  4. List the major types of financial markets and describe what distinguishes them.
  5. List the major types of financial instruments or securities and describe what distinguishes them.
  6. List the major types of intermediaries and describe what distinguishes them.
  7. Describe and explain the most important trade-offs facing investors.
  8. Describe and explain borrowers’ major concerns.
  9. Explain the functions of financial regulators.