Question

Of the above, which is not a task of the financial system?

A.Decreasing Interest Rate

B.Reducing Transaction Costs

C.Reducing Risk

D.Increasing Liquidity

Answer 1

The three tasks of a financial system are to reduce the problems facing borrowers and lenders by moderating the following:

1. Reducing Transaction costs: Transaction costs are the expenses of putting together and executing a deal. When a large business wants to borrow money, they can either get a loan from a bank or sell bonds in the bond market without incurring in large transaction costs. A well functioning financial system is critical in achieving long-run growth because it encourages greater savings and investment spending and one way to that is by reducing transaction costs

2. Risk: Financial risk is uncertainty about future outcomes that involve financial losses or gains.A well-functioning financial system helps people reduce exposure to risk, by allowing investors to engage in diversification.

3. Desire for liquidity: The third task of the financial system is to provide investors with liquidity, which is important because the future is uncertain.

Hence Decreasing Interest Rate is not a task of financial system.