FINA3304: Banking Theory & Practice
Tutorial 1 (Week 2)
1) Banks are the major providers of intermediated finance to the household and business
sectors of an economy. In carrying out the intermediation process, banks perform a range of
important functions. List these functions and discuss their importance for the financial
system.
a)
Maturity transformation
-
Borrowers and savers offered products with range of maturities
b)
Asset transformation
-
Wide range of products for deposit and lending
c)
Liquidity transformation
-
ST preference of depositors for access for funds, LT preference of borrowers for
commitments of funds
d)
Economies of scale
-
Cost efficiencies from large scale operations
e)
Credit risk diversification
-
Credit risk is with the intermediary, diversified across thousands of borrowers
2) What are the differences between primary market and secondary market financial
transaction/ Why is the existence of well-developed secondary markets important to the
functioning of the primary markets within the financial system?
Want to read both pages?
You've reached the end of your free preview.
Want to read both pages?
