Villarama, Deserey DL

PCBEA-01-402A

CHAPTER 1

1. Why is there a need to understand how monetary policy is conducted by central bank worldwide?

Because it helps to control economic disruption and achieve price stability, central banks adopt
monetary policy, which results in low and stable inflation. In many advanced economies, central
banks have clear inflation targets.

2. What crucial role do banks and other financial institutions are managed important to your life?

Banks act as financial intermediaries between savers and borrowers, providing interest payments
and loans.

3. Why is understanding how financial institutions are managed important to your life?

An understanding of finance is essential for personal success, because it helps to contribute

effectively and make better decisions.

4. Give three important reasons why is there a need to study financial markets?

-Studying financial markets will help us understand how funds circulate between financial
institution, government, individual and firms. It will let us know what makes us lend or invest our
available money to financial institutions as well as when we want to borrow funds.

-Activities in the financial market will let us know how it affects personal wealth the behavior of
the business firms and the economy as a whole.

-We will understand how to make financial market function efficiently because they contribute to
the growth and performance of an economy.

5. What is the most significant role that financial markets play?

They are particularly concerned about the risk and potential failure that financial institution (bank
and non-bank face) because they play a vital role in financial systems.

6. Explain briefly the three levels of the framework that underlie the study of financial markets and
institutions.

A. Understanding - this is the first level in framework underlying on the study of the financial markets and
institution wherein students learn to understand the economic analysis, that is, students develop the
economic intuition they need to organize concepts and facts.

B. Evaluating - This is the level wherein the students learn to evaluate current developments and the
financial news. Students learn to use financial data and economic analysis to think critically about how
they interpret current events.

C. Predicting- This is the last level of the framework underlying on the study of financial markets and
institution wherein the students learn to use economic analysis to predict likely changes in the economy
and the financial systems.