Edexcel A Level Economics B
Edexcel A Level Economics B 4.5 Risk and the Financial Sector Exam Questions
Free Edexcel A Level Economics B exam questions on 4.5 Risk and the Financial Sector, with mark schemes. Covers financial markets, risk, market failure in finance and regulation.
4.5 Risk and the Financial Sector exam questions
1 question pack of real past exam questions with its mark scheme. Answer every question without notes, then mark your answers line by line against the mark scheme.
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A Level Economics Flashcards
Every answer is written in mark scheme wording, so you learn exactly what examiners give marks for. Pick your exam board, then test yourself with the questions on this page.
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About Edexcel A Level Economics B 4.5 Risk and the Financial Sector
4.5 explains how risk is handled in the financial system and why it can fail. Questions often refer to the 2008 financial crisis.
What you need to know
- Role of the financial sector Channelling savings to borrowers, managing risk and providing payment systems.
- Risk and uncertainty Risk can be measured and insured; uncertainty cannot.
- Market failure in finance Asymmetric information, moral hazard, speculation, bubbles and systemic risk.
- Regulation The Bank of England, the Prudential Regulation Authority, the Financial Conduct Authority and capital requirements.
Common mistakes in 4.5 Risk and the Financial Sector
- Confusing risk with uncertainty.
- Mixing up moral hazard and asymmetric information.
- Forgetting the external costs of bank failures.
Try three 4.5 Risk and the Financial Sector exam-style questions
1. Define moral hazard. (2 marks)
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When an individual or institution takes more risk (1) because the costs of failure will be borne by others, such as taxpayers (1).
2. Explain why the failure of a large bank creates negative externalities. (2 marks)
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Its failure can spread losses to other banks and businesses (1), reducing lending and causing recession and job losses for third parties (1).
3. Explain one way regulators reduce risk in the banking system. (2 marks)
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Requiring banks to hold more capital (1) gives them a buffer to absorb losses without collapsing (1).
4.5 Risk and the Financial Sector FAQs
What does Edexcel A Level Economics B 4.5 cover?
The financial sector, risk and uncertainty, market failure in finance and financial regulation.
Which institutions regulate UK finance?
The Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority.
Why is 2008 important?
It shows how moral hazard, speculation and asymmetric information can cause a financial crisis.
Revise this topic with flashcards: A Level Economics Flashcards, with mark scheme answers for Anki and Quizlet.
