Question

Pls do not handwrite the answer, this is for easy reading

Question 1

Explain the structure of a developed financial system, ie its function, financial markets, the role of financial institutions, the type of instruments exchanged.

Question 1b)
For a country, the ideal Foreign Exchange (FX) regime should have features that have become known as “ the impossible trinity”.
Starting with a brief history of FX regimes (covering, in particular, the Bretton Woods Agreements), analyse and substantiate with examples:

Why is each of the 3 traits of the impossible trinity desirable?

Why are all the 3 traits not achievable all at the same time?

Answer 1

Answer 1:

Developed Financial System refers to the network of financial instruments, financial services, financial markets and financial institutions which indeed faciliates transfer of funds. Sustainable economic growth and developed financial system go hand in hand i.e are corollary. Financial system consists of variable which are interdependent and interelated and those are finance,money and credit.

The major function of financial system is optimum allocation of financial resources in an economy. It establishes link between savers and investors. It also enhances liquidity of financial claims and reduces the cost of transactions. It helps in diversification which indeed helps in risk transformation. The demand and supply forces determines prices of securities

Financial Institutions are the establishments conducting financial transactions of investment,deposits and loans. commercial banks , investment banks , insurance company , brockerage and investment companies are types of financial institutions. These help in higher level of economic activities and thus, permits high liquidity.

Various types of instruments exchanged by financial institutions includes contractual right to receive and deliver,ownership interest in an entity , cash ,etc.