Question

1. a) Which of the following are real assets, and which are financial?

1. A Share of Stock
2. A Personal IOU
3. A Trademark
4. A Factory
5. Undeveloped Land
6. The Balance in the Firm’s Checking Account
7. An Experience and Hard Working Sales Force
8. A Corporate Bond

              b) Identify and briefly describe the financial functions in the financial system.

              c) Identify the financial system’s major components and their roles.

              d) Describe the MI definition of the money supply and indicate the relative significance of the MI

                   components.

Answer 1

1. A Share of Stock - Financial Asset
2. A Personal IOU - Real asset
3. A Trademark    - Real asset
4. A Factory - Real asset
5. Undeveloped Land - Financial Asset
6. The Balance in the Firm’s Checking Account  - Financial Asset
7. An Experience and Hard Working Sales Force - Real asset
8. A Corporate Bond  - Financial Asset

c)

The financial system means the system through which the economic transactions are faciliated. It includes various products and services provided by financial institutions like banks, insurance companies etc. In other words, A financial system refers to a system which enables the transfer of money between investors and borrowers.

Various components of Financial System are-

1. Financial Institutions: These are the institutions which enable transfer of money and make financial system possible.it includes banks, insurance companies etc.

2. Financial Markets: A Financial Market can be defined as the market through which financial assets are created and afterwards transferred.

3. Financial Instruments:The products which are traded through thw financial market are financial assets, securities or other types of financial instruments.