The government regulates financial markets for two main reasons:
A) to ensure soundness of the financial system and to increase the information available to investors.
B) to improve control of monetary policy and to increase the information available to investors.
C) to ensure that financial intermediaries do not earn more than the normal rate of return and to improve control of monetary policy.
D) to ensure soundness of financial intermediaries and to prevent financial intermediaries from earning less than the normal rate of return.

Question

Quizplus · Accepted Answer

The government regulates financial markets to ensure the soundness of the financial system and to increase the information available to investors. The soundness of the financial system is important as it prevents issues such as systemic risk, which can have widespread effects on the economy. Additionally, increasing information available to investors can help to reduce information asymmetry, which allows for more efficient allocation of resources in financial markets.

The Government Regulates Financial Markets for Two Main Reasons