4.4.1 - Role of financial markets

Question 1

What are financial markets ?

Answer 1

A place where buyers and sellers meet trade financial instruments.

Question 2

What is the role of financial markets ?

Answer 2

Question 3

What are financial derivates ?

Answer 3

Financial instruments or Contacts set between two or more parties. That derive their value from an underlying asset, group of assets or a benchmark.

Question 4

What is meant by financial markets facilitate saving ?

Answer 4

Financial institutions such as banks and credit unions. Provide a safe and convenient platform for individuals and businesses to save their money.
- They offer various types of savings account:
- ISA’s
- Fixed deposits
- IRAs
- Pension funds

Question 5

What is meant by financial markets lending to business and individual’s ?

Answer 5

• They act as intermediaries between savers and borrowers.
• They collect deposits from individuals and then lend this money to businesses and individuals in need of financial capital.
• 12They can also allocate these funds to support loans and investments, thereby stimulating economic activity.

Question 6

What is meant by financial markets facilitating the exchange of goods and services ?

Answer 6

• Financial institutions provide a wide range of payment and transaction services that facilitate the exchange of goods and services in the economy.
  E.g banks offer debit card, credit cards and bank transfers.
• Central banks print money, institutions process cheque transactions

Question 7

What is meant by financial markets providing forward markets in currencies and commodities ?

Answer 7

• Financial institutions participate in financial markets by offering and writing up forward contracts for currencies and commodities.
• These contracts allow business’s and investors to hedge against currency exchange rate fluctuations* and commodity price volatility.
• Forward markets provide a mechanism for parties to lock in future prices, reducing uncertainty and risks associated with international trade and commodity markets.

Question 8

What is meant by financial markets providing a market for equites ?

Answer 8

• Financial institutions serve as intermediaries in the equity market allowing individuals and institutions to buy and sell shares of publicly traded companies.
• Financial markets provide the ability for shares to be sold on in the future, making the asset more.

Question 9

What is equity ?

Answer 9

Selling a percentage of their company through shares.
- This increases share capital.

Question 10

Explain the role of financial services industry in promoting economic growth.

Answer 10

(Name and explain all their points then say)
- This allows firms to finance investments reducing as price volatility is reduced.
-