Financal Markets Flashcards
Role of financial markets
To facilitate saving
Lend do businesses and individuals
Facilitate exchange of goods and services
To provide forward markets on currencies and commodities
Provide market for equities
Speculation and market bubbles
Investors behaviour
Asymmetric information
One party has more knowledge
Moral hazard
Is a situation in which one party gets involved in a risky event that it is protected against the risk and the other party will incur the cost
Adverse selection
Selling to unworthy buyers
Market rigging
Fixing market rates
Externalities
Excessive risk taking by traders (principle agent)
New regulations in the financial sector
Max interest rates
Deregulation of banks
Prevent sale of unsuitable products
Limits on bank lending
Ban market rigging
Financial regulation bodies
Financial policy committee (BOE)
Prudential regulation authority (BOE)
Financial conduct authority (GOVT)
FCA role
Supervises lending firms
Vans mis selling
Promoted competition
Bans misleading adverts
FPA role
Manages system
Carries out stress tests
Advises GOVT of upcoming risks
PRA role
Manages individual banks
Liquidity ratio
Reserve requirements
Leverage ratio
Criticisms of new regulations
Liquidity rates too high for banks
Regulation capture too soft on banks
Prevents buyers getting in property ladder
Can market regulate itself
Rogue individuals
