ECS3701 Assignment 2 (COMPLETE ANSWERS) Semester 2 2026 - DUE 11 September 2026

ECS3701 Assignment 2 (COMPLETE ANSWERS) Semester 2 2026 - DUE 11 September 2026; 100% TRUSTED Complete, trusted solutions and explanations. For assistance, Whats-App 0.8.1..2.7.8..3.3.7.2... 2.01 Discuss how collateral and indirect finance are used in explaining the basic facts about financial structure around the world. [10] 2.02 The two ways in which government can finance its deficit is through monetizing the debt and printing money. Explain each of these two ways in detail and what happens to monetary base and money supply. [15] 2.03 “The independence of the Reserve Bank means that it is unlikely to focus on the long term objectives but seeking short-run solutions.” Is this statement true, false, or uncertain? Explain your answer. [10] 2.04 There is a single, precise definition of money or money supply. Is this statement true, false or uncertain? Support your answer. [5] Open Rubric 2.05 Write down the money multiplier, m. Explain each of the variables that determine the money multiplier and state who set each of the variables.(i) Explain how asymmetric information can lead to adverse selection in financial markets. [5] (ii) Explain how a deterioration in borrowers' balance sheets in relation to adverse selection and moral hazard can contribute to a financial crisis. [5] (iii) Briefly explain the three stages through which a financial crisis in an advanced economy can develop. [6] 2.02 (i) “There is a single, precise definition of various measures of money”. Is this statement true, false or uncertain? Support your answer. [4] 2 (ii) Define money in the practical sense and provide the answer in equation form. [4] (iii) Explain how money functions as a unit of account. [2] 2.03 (i) Explain how a commercial bank earns profits from its balance sheet. [5] (ii) Distinguish between credit risk and interest-rate risk in commercial banking and explain how Banks manage these risks. [10] 2.04 (i) Does the South African Reserve Bank control the money supply in the simple way assumed by the liquidity-preference framework? In your answer, discuss the most important tool used by the South African Reserve Bank and how it affects the economy. [4] (ii) Why are financial intermediaries, particularly banks, important in overcoming problems associated with direct finance?