12 Financial markets and monetary policy Flashcards
Money supply
the value of the stock of money that exists within an economy at a point in time
Financial markets
markets that enable transfers between those who wish to deposit funds and those looking to borrow funds
Treasure bill
a very short-term form of borrowing by the government, usually repaid within three months
Capital market
he market which deals with medium-term and long-term finance between individuals, firms and governments
In what capital market divides?
- primary market (deals with bonds and shares newly issued by the government)
- secondary market (deals with bond and shares that already issued)
Bonds
a form of borrowing giving the holder a fixed rate of interest and the money is repaid within set period of time, bonds can be traded
Shares
issued by firms raising finance, giving the holder the chance to receive dividends out of the firms’ profits and often allowing the holder to vote in company affairs
Foreign exchange market
the market that deals with transactions requiring conversion from one currency into another currency
In which two markets does the foreign exchange market divides?
- spot market (conversion of currencies at the current market rate)
- forward market (agreement to buy currency at some future date at agreed exchange rate)
Equity
the value of share capital issued by firms as part of their financial capital
Coupon
the fixed interest rate on a bond
Maturity date
the date of repayment for a bond
Central bank
the bank of economy responsible for the issue of money and management of monetary policy for that currency
Monetary policy
through setting level of interest rates, trying to control the economy
Objectives of monetary policy
- inflation rate of 2% +- 1%
- the target achieved through changes to the bank rate
