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Basic Question 1 of 6

Which of the following is not true?

A. At equilibrium interest rates, the amount offered by lenders equals the amount demanded by borrowers.
B. Financial markets facilitate borrowing and lending.
C. If the amount that lenders want to lend is greater than the amount that borrowers want to borrow, interest rates will decrease.
D. In perfectly competitive markets, financial intermediaries act as price setters to clear the market.
E. People use financial markets to adjust their pattern of consumption over time.

User Contributed Comments 9

User Comment
intj Are you sure this is the right answer?
cgeek not price setters
John1965 yes D is correct: in perfectly competitive markets buyers and sellers (instead of financial intermediaries) set the price by demand and supply.
JP09 If they were monoplositc markets then the financial intermediaries could be price setters.
sarath In perfect markets brokers should not be the price setters ...but instead pure demand and supply. ...
gene80 ha ha.. a trick question
saltnvinegar what about E??..why is it True???
Springer D....They are price takes
Laurier Saltnvinegar:

As I understand things, E is true because financial markets facilitate "intertemporal" decisions. People who wish to consume more in future periods can invest their excess resources today, to withdraw in the future when needed (hopefully having grown!).

Alternatively, if you expect excess resources in the future, but would like to consume today, you borrow from the markets. Therefore, markets help people adjust consumption patterns over time.

(This is true for businesses and governments as well).
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Learning Outcome Statements

describe characteristics of a well-functioning financial system

CFA® 2024 Level I Curriculum, Volume 3, Module 1.