ECON4 Financial Markets Flashcards
What is a financial market
A set of arrangements where buyers and sellers can buy or trade a range of goods/services/assets for financial gain
6 roles of financial markets
Facilitate saving, Lending, Facilitate exchange, Provide forward markets, Provide equity markets, Provide insurance
5 types of financial institutions
Retail banks, Commercial banks, Investment bank, Saving vehicles, Insurance companies
6 key financial markets
MoneyCapitalFXcommodityDerivativesInsurance
Types of financial market failure
Asymmetric infoMoral hazardsSpecualtion/bubblesMarket riggingExternalities
What is a market bubble
when speculation causes a price to be excessively high, which may then collapse
What is herding
investors watch what other investors do rather than at the underlying value of an asset
What is the relationship between bonds and IR
proportional as substitutes
What is a central bank
Instution responsible for acting as the governments bankers
4 key roles of central bank
Implements monetary policyBanker to governmentBanker to banks (lender of last resort)Regulator
Classic financial markets moral hazard
bailing out banks
What is the capital/leverage ratio
Ratio of liabilities/capital/reserves to assets
