1. What are the main functions of financial systems? Shortly explain.
2. You are an empirical researcher interested in the impact of stock markets and financial intermediaries development on economic growth. You decided to devise your own empirical model to explain the relationship between financial development and economic growth. Write down your regression equation (with the dependent variable, variables of interest and at least two control variables) and indicate the expected signs of the coefficients of independent variables. Hints: (1) Dont forget to include the constant, the error term. (2) Propose measures for financial institutions development and stock market development (one for each) which you will use as variables of interest. What variable would you like to use to measure bank and stock market development, respectively? (3) Propose a measure for economic growth, which you can use as dependent variable.