4.4.1- Role Of Financial Markets UNFINISHED

Question 1

What are financial markets?

Answer 1

Where buyers and sellers can buy and trade a range of services or assets that are fundamentally monetary in nature

Question 2

What are the types of financial markets?

Answer 2

-money market
-capital market
-foreign exchange market
-commodity market
-derivatives market
-insurance market

Question 3

What is the money market?

Answer 3

Provides short term saving and lending

Question 4

What is the capital market?

Answer 4

Provides longer term financing

Question 5

What is the derivatives market?

Answer 5

Trading financial instruments basted on the values of other financial instruments

Question 6

What are the types of financial institutions?

Answer 6

-retail banks
-commercial banks
-investment banks
-building societies
-pension funds
-insurance companies
-life assurance companies
-crowdfunding platforms
-challenger banks
-shadow banks
-central bank

Question 7

What is a retail bank?

Answer 7

A bank that provides savings, mortgages, and current accounts to households

Question 8

What is a commercial bank?

Answer 8

A bank that provides loans and accounts for firms

Question 9

What is an investment bank?

Answer 9

High network individuals speculate on equities, bonds, commodities, currency

Question 10

What is a building society?

Answer 10

Like a retail banks, but the account holders are the owners

Question 11

What are pension funds?

Answer 11

Manages the income that people put away for their pension and speculate it

Question 12

What are insurance companies?

Answer 12

You pay a premium and if something happens they pay an agreed amount

Question 13

What are assurance companies?

Answer 13

A guarantee that money will be paid out when you die

Question 14

What are crowdfunding platforms?

Answer 14

Individuals provide finance for firms

Question 15

What are challenger banks?

Answer 15

New banks that are challenging the old big banks due to deregulation

Question 16

What are shadow banks?

Answer 16

Banks that don’t meet all of the bank regulations

Question 17

What is the central bank?

Answer 17

Controls the monetary supply and monetary policy, manages the country’s gold and foreign currency reserves and issues govt debt

Question 18

What is a forward contract?

Answer 18

A contract that you will receive an amount of raw material at an agreed date and price

Question 19

Why do consumers borrow?

Answer 19

To receive immediate gratification

Question 20

Why do consumers save?

Answer 20

For delayed gratification

Question 21

What do financial markets act as?

Answer 21

Intermediaries between those who need capital and those who have capital

Question 22

What are the roles of the financial market?

Answer 22

-to facilitate savings
-to lend to businesses and individuals
-facilitate the exchange of goods and services
-provide forward markets
-provide a market for equities

Question 23

Why do people save with banks?

Answer 23

For delayed gratification, precaution, and for the security

Question 24

Why is lending an important role of the financial market?

Answer 24

-allows consumption and investment
-used for firms if there is an unexpected large order or rise in costs
-for large purchases like mortgages and cars

Question 25

Why is facilitating the exchange of goods an important role of the financial market?

Answer 25

-central banks print money, companies offer credit cards, banks buy and sell currencies
-creates a payment system

Question 26

What are the benefits of a successful banking system?

Answer 26

-dynamism
-robustness
-resilience

Question 27

What is dynamism?

Answer 27

The ability for firms to grow and change

Question 28

What is robustness?

Answer 28

Ability to withstand economic/ external shocks

Question 29

Why is it important to be robust?

Answer 29

-prevents bankruptcy
-allows forward contracts to avoid volatile prices
-helps avoid liquidity crisis

Question 30

What is resilience?

Answer 30

The ability to bounce back after a downturn

Question 31

Why is it important to be resilient?

Answer 31

-improves confidence due to trust in banking sector
-AD and I will increase faster