2.1 Function of Financial Markets 1) Every financial market has the following characteristic. A) It determines the level of interest rates. B) It allows common stock to be traded. C) It allows loans to be made. D) It channels funds from lenders-savers to borrowers-spenders. Answer: D AACSB: Reflective thinking 2) Financial markets have the basic function of A) getting people with funds to lend together with people who want to borrowfunds. B) assuring that the swings in the business cycle are less pronounced. C) assuring that governments need never resort to printing money. D) providing a risk-free repository of spending power. Answer: A AACSB: Reflective thinking 3) Financial markets improve economic welfare because A) they channel funds from investors to savers. B) they allow consumers to time their purchase better. C) they weed out inefficient firms. D) they eliminate the need for indirect finance. Answer: B AACSB: Reflective thinking 4) Well-functioning financial markets A) cause inflation. B) eliminate the need for indirect finance. C) cause financial crises. D) allow the economy to operate more efficiently. Answer: D AACSB: Reflective thinking 5) A breakdown of financial mark