4.4 Role of financial markets

Question 1

what are the 5 roles of the financial market?

Answer 1

1. facilitate saving
2. faciliating lending
3. facilitate exchange
4. provide a market for equity
5. provide forwards markets

Question 2

how do financial market facilitate saving?

Answer 2

provides an opportunity for individuals and firms to save money which they can then access in the future

eg: intrest on bank account/ pension funds

Question 3

how do financial markets facilitate lending?

Answer 3

lending money to firms and individuals who need more cash, can invest more/ afford mortage

eg: bank loans/

Question 4

how do financial markets facilitate exchange?

Answer 4

makes it easier for individuals and firms to trade with each other nd goods and services

banks

Question 5

what is equity ?

Answer 5

when a firm sells a percentage of their company to investors in the form of shares. The investors then recieve a percentage of the profits

Question 6

what are forward ?

Answer 6

special contracts that guarantee that a trade happens at a later date and at a certain price
* used fot currecnies/ commodities

protection against volatile prices, allowing for budgeting

Question 7

what are the roles of the central bank?

Answer 7

• lending money to governments
• lending money to other highstreet banks
  implementing monetary policy by
• manipulating base intrest rate
• manipulating money supply
• regulating the banking industry

Question 8

what is an example of strict set of financial regulation rules imposed by the FED in 2011?

Answer 8

basel 3: stress testing to see what banks would do if there were another financial crisis