A Well-Functioning Financial System Does All of the Following Except

question 11

Multiple Choice

A well-functioning financial system does all of the following except:

• A)foster economic growth by directing savings to its most productive use.
• B)allocate risk among market participants.
• C)eliminate systematic risk through diversification.
• D)direct resources from savers to borrowers.

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Definitions:

Insurance

A financial product that provides protection against potential future losses or damages in exchange for a premium.

Wealth

The abundance of valuable resources or material possessions, or the control of such assets that can be used to produce more income.

Expected Utility Function

A mathematical representation of an individual's preference for uncertain outcomes, using probabilities to calculate the expected satisfaction or utility.

Utility Function

A mathematical representation that shows the relationship between the utility or satisfaction a consumer receives and the consumption of various goods and services.