Question

INSTRUCTIONS: DEFINE THE FOLLOWING TERMS AND CONCEPTS IN A CLEAR, CONCISE, AND EXPLICIT WAY. DEMONSTRATE THE RELATIONS BETWEEN THEM!

• Shadow banking & leverage;

Answer 1

Shadow banking : It refers to the financial intermediaries involved in facilitating the creation of credit across the glbal financial system . It also refers to unregulated activities by regulated institutions.It is generally non-bank finnacial intermediation activities taking place outside the regulated banking system.

Leverage: It is the investment strategy of using borrowed money , (use of various financial instruments or borrowed capital) to increase the potential return of an investment. It refers to the amount of debt used to finance assets.

Leverage is the core at the shadow banking system.