Financial Market Products Flashcards
What is consumer credit?
A form of financial product that allows consumers to purchase goods in advance of the actual payment. Enables them to tap into future streams of income. Most common form is credit cards. Credit is payed for by the full borrowed amount, with interest. (also includes personal loans)
What are housing loans?
Loans, mainly offered by banks, that are longterm and used to purchase property. Involves periodic repayments with interest. These loans are ‘secure’ as the property can be sold off in the case of a default.
What are business loans?
Forms of debt that allow businesses to invest in their operations. Small business loans have higher rates as they are riskier.
What financial instrument is traded in the short-term money market?
Along with the transaction of ES funds between RBA and banks, individuals and businesses can trade in this market to trade surplus funds. Banks with surplus funds will issue debt securities to those in need of funds. The debt securities have a short maturity period.
What are bonds?
A written record of a debt. The borrower sells a bond in return for a loan. The holder of a bond receives interest payments (called coupon payments) and the final repayment. They are longer term securities. They are issued by the gov. and some large companies and banks.
What are financial futures or options?
Contract to trade a financial instrument at a later date for a certain price. Allows investors to protect themselves against changing interest rates or currency. Options give their holder the right to make a transaction.
What financial instrument is traded in the foreign exchange market?
Buying and selling of foreign currency. Individuals - when going on holiday. Businesses - when doing business with overseas firms.
What are shares?
A type of financial asset that provides an individual with ownership of part of a company.
What are the two main types of financial instrument?
Equity - gives ownership and profit claims
Debt - money that must be repaid
