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Unformatted text preview: 2. Risk requires compensation 3. Information is the basis of decisions 4. Markets set prices and allocate resources 5. Stability improves welfare A well functioning financial system promotes economic efficiency – the financial system market makes it easier to trade Facilitates payments – bank checking accounts – cash transactions – providing checking accounts, credit cards, and debit cards Channel funds from savers to borrowers – lending is a form of trading (trade value for a promise) Enable risk sharing – classic examples are insurance and forward markets – trade in risk insurance, forward markets...
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This note was uploaded on 10/14/2009 for the course ECON 330 taught by Professor Neri during the Spring '08 term at Maryland.
- Spring '08