FINA3304 Tute 1.docx - FINA3304 Banking Theory Practice Tutorial 1(Week 2 1 Banks are the major providers of intermediated finance to the household and

FINA3304 Tute 1.docx - FINA3304 Banking Theory Practice...

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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?
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