ECS3701 Assignment 2 2026 - Distinction | Due 11 September 2026

ECS3701 Assignment 2 2026 - Distinction | Due 11 September 2026 Assignment 02 for Semester 2 (Optional) ECS3701 nd 2 semester Unique number 371590 Due date Friday 11 September 2026 Material All learning Units Make sure that you write the following on the assignment answer paper: • Your name and student number • The module code • The unique assignment number is indicated in the table above. Note that there are different unique numbers for the first and second-semester assignments Assignment 02 • is optional but contributes 60% towards your semester mark and therefore contributes towards your final mark. • is a written assignment. • covers all learning units. • consists of FOUR (4) questions worth 50 marks • should have a maximum of FIVE (5) pages for all the questions, written or typed. (Extra pages beyond 5 will be ignored; that is, they will NOT be marked). Note: • The 5 pages are content only - for all questions, written or typed. The 5 pages exclude the title/cover page etc.). • You need to cite and correctly reference external sources used. • You will be severely penalised if you plagiarise or copy from other students and/or other sources. Use your own words as much as possible. 2.01 (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] 1 (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? [5] 2