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Total Marks   20  





Money & Banking students will be able to understand:


  • The importance of central bank, to keep control & check on financial system, financial markets and financial intermediaries”


  • The nature of different financial system’s risks & problems, their causes and effects on the whole economic and financial system.



The stability of the economy and financial system is the main objective of the government of each and every country. Any disturbance in the financial system will affect not only financial activities but the economic activities of that country. Such disturbance makes monetary & fiscal policies ineffective and weakens the allocation and utilization of capital. Continuous activities in the financial markets with proper check and control by the government are very necessary for the financial and economic stability. Any disruption in the market acts like a trigger in transmitting and intensifying financial crises.

Suppose an economy whose central bank does not interfere in the activities of financial system. In such system, the information cost is very high and the buyers face many difficulties before making investment in the stock as they don’t get much information about the riskiness of the stocks and all stocks seem alike to them.


1.     Mr. Riaz wants to invest his saving in some high quality stocks or bonds. What problems he faces before investing in such financial market. How does he react to cope up with those problems?

2.      Identify the main problem with the financial system and suggest remedies for it.

3.      How the above scenario in extreme case leads to the collapse of financial system?


Note: Complete your comment within 250 words

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Replies to This Discussion

Its just like a comprehensive paragraph.. Read it carefully and then write ur answer...

sadaf thik hai app na jou b deya hai vo sab 1st mei aay ga mgr 2nd kmei kon se aay gi main problem and us ka solution 

than 3rd mei kya aay ga FM 

main problem yahi ha k koi b disturbance ho agar so it makes monetary & fiscal policies ineffective and weakens the allocation and utilization of capital.. or is k lye remedy pochi gai ha us ka answer b paragraph mai he ". Continuous activities in the financial markets with proper check and control by the government are very necessary for the financial and economic stability."

kuch or help mily gi mery word pura nhi ho ra 

or tw mjhe idea nh or 3rd ka answer nh smjh aaya mjhe... Kisi ko aata ho tw plx help ME

kon say extreme cause ha jo collapse ki tarf lead krta ha :)

just wo batana ha

OR vo cause hain konse

the given scenario can be extreme case when inflation rate grow up and inflation take place.
interest rate rise.
protection of investment will not be available and then peoples don't invest
all investment go out of the country and economy will be damaged badly and shutdown,

us na bola tha above scenario so its mean central bank ko interrupt na karna ha .....

agy aap log bhethar janty ho:p


Under the above given scenario MR Riaz have to get the perfect knowledge about the business of stocks and bonds in order to invest his saving.

The problems that he can face are the inflation risks, interest rate risk, liquidity risk, credit risk and downward rating risk as well as problem of fluctuation of prices etc.

He can cope such problem by getting the perfect knowledge about market. Here the most important thing that every successful business is full of risk and if he wants to get profit he must be risk aversion.  


The main problem of our financial system is the ineffective policies make by the Govt.  And the state bank of Pakistan. That there no regularity in the policies due to which the currency devaluate day by day. While it also effect the stock market as well as the great cause of the economy regress. Govt. should make effective Fiscal policy in this regards. And the state bank has also make effectiveness in the monetary policy, that can be helpful in this regards and another reason of it is instability of political situations of economy.


Above scenario collapse by the financial system  directly as due to liquidity risk and due the irregular changes of the rate of interest , as we know that our financial system have no proper policies and effective policies due to which the investment in on great risk due to the fluctuation of interest rate  multiplier effect . 


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