2021 Sample Paper Flashcards
Real vs Nominal IR
Nominal interest rate is the cost of borrowing before inflation. Real interest rate reflects the true cost of borrowing. RR = nominal IR - inflation
2 sided payment platforms
platforms that bring buyers and sellers together to create an efficient exchange system. Buyers bid and sellers ask price
Limit order books
A record of limit orders maintained by the specialist who works at the exchange. A limit order is a type of order to buy or sell a security at a specific price or better. A buy limit order is an order to buy at a preset price or lower while a sell limit order is an order to sell a security at a pre-specified price or higher.
Spoofing
Type of scam in which a criminal disguises an email address, display name, phone number, text message, or website URL to convince a target that they are interacting with a known, trusted source. Spoofing often involves changing just one letter, number, or symbol of the communication so that it looks valid at a quick glance. For example, you could receive an email that appears to be from Netflix using the fake domain name “netffix.com.”
Debt deflation
A fall in prices, wages, and asset values leads to increasing pressure on borrowers’ ability to service their debt and a rise in defaults.
Purchasing power parity
A theoretical ER that states how much a basket of one goods will cost in another country. Uses Big Mac index.
Speculative attack
A speculative attack on a currency occurs when ‘investors’ believe the value of a currency is over-valued and therefore, they sell that currency in anticipation of it falling and buy another currency. They make money by seeing the value of the currency they buy (e.g. Euros) increase.
Macroprudential regulation
Approach to financial regulation, aiming to mitigate risk to the entire financial system and avoiding the macroeconomic costs of financial instability. The approach is used by central banks and regulators around the world.
Explain how P2P platforms transform the financial intermediation landscape
P2P lending platforms provide online technologies creating a marketplace where investors who wish to lend funds can find potential borrowers and provide credit through P2P agreements.
Direct lending to a wider range of investors and borrowers than before
Borrower: source of finance that primarily compete with banks, but usually as price takers that lend at the going rate. Thus platforms increase competition and choice for borrowers
Investor: greater distinction and novelty as it gives investors the opportunity to directly fund loans & owns a part of the cash flows of the lending business
What are the risks and regulatory issues posed by P2P platforms?
Success of platform depends on number of borrowers & lenders on platform
Data Privacy: Protection of information provided by borrowers and lenders
Lack of history in the context of technological products to rely on
How does a central bank maintain the peg under a fixed ER for an undervalued domestic currency
Diagram. Central bank sell domestic currency by purchasing foreign assets. How does this affect domestic IR causing shifts for DD for local currency
