Question 1:
(a) ‘The function of the financial system is only to channel funds from the surplus units to the deficit units'. Discuss.
(b) How far can the liquidity preference theory be used to explain the determination of interest rates.
(c) With the help of appropriate examples, explain the concept of adverse selection and moral hazard in relation to financial markets.
Question 2:
(a) Advise a risk averse individual whether to invest his capital in a money market or capital market. Justify your answer.
(b) Explain five types of Money market instruments and three types of Capital market instruments.