financial markets Flashcards
liquidity
the ease with which an asset can be converted into cash. cash is the most liquid of all assets
financial markets
markets where financial securities, such as stocks and bonds, are bought and sold. buyers and sellers come together to exchange trade services and assets that are monetary in nature
nominal value
how much the bond is available for at the issue
coupon
the stated interest payment made on a bond
yield
the annual rate of return on a bond if the bond were held to maturity. {coupon / market price * 100}
maturity date
the date when a bond will come due
near monies
certain highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readily converted into currency or checkable deposits
financial assets
assets not easy to turn into cash eg bonds
narrow money supply
the amount of notes (currency) and coins in circulation in an economy plus balances in checkable bank deposits, known as Mo
broad money supply
narrow money plus near monies, sometimes called M4
money in current accounts
electronic money deposited in banks/building societies by people
the money market
short term borrowing/lending, treasury/commercial bills, inter-bank lending (LIBOR). banks lend surplus cash reserves to each other every day
the capital market
longer term debt and equity instruments are traded (financing for individuals/businesses)
the forex market
trading different currencies, mostly speculative rather than for international trade purposes
equity
share of a company
treasury bills
short-term government securities issued at a discount from face value and returning the face amount at maturity
commercial bills
are primarily short-term loans issued by financial institutions, for larger amounts (usually over $100,000) for a period of generally between 30 to 180 days
bond
a formal contract to repay borrowed money with interest at fixed intervals. available to companies (corporate bonds) and government (gilts)
shares
equal parts of the division of ownership of a corporation
pensions
a fixed amount of money paid to a retired person by a government or former employer
advances
commercial banks can create additional credit (electronic money) which they lend out to individuals/businesses
commercial banks balance sheet
shows value of all things a business owns (assets) and value of all the things they owe to others (liabilities)
systemic risk
the risk that the failure of one financial institution can bring down other institutions as well. banks are inter-related.
moral hazard
investment bankers can take large risks with investments but are aware that they will personally bear very little of the risk. As a result, they may be inclined to act in a riskier way than is appropriate
liquidity ratio
compares the more liquid assets in a bank to the short-term liabilities (current accounts and quick-access savings accounts) the higher liquidity ratio, the easier a bank can cover a ‘run on bank’
capital ratio
compares all of the banks assets to all of its liabilities
speculation and bubbles
speculation is rife in financial markets and this can cause market bubbles where prices go excessively high and these burst
FCA
The Financial Conduct Authority - a financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. It focuses on the regulation of conduct by both retail and wholesale financial services firms.
FPC
Financial Policy Comittee - A part of England that monitors and responds to risk posed to as and responds to risk posed to the entire financial services market. Its focus on the whole market makes it a macro-prudential authority.
PRA
Prudential Regulation Authority - one of the two main regulators of financial services in the UK. (The other is the Financial Conduct Authority)
debt
money which has been borrowed from a lender, which is usually a bank. There is little flexibility, and the loan is later repaid with interest.
equity
a stock or security which represents interest in owning e.g. a firm, a car or a house. It is when there is no outstanding debt, such as when a loan for a car or a mortgage has been fully paid off. The owner’s equity is then the car or the house, which can be sold for cash.
PPI
payment protection insurance
savings
financial assets, eg money/stocks/shares, are a way of transferring purchasing power from the present into the future
lending
borrowing money
commercial banks
a financial institution that accepts deposits, offers checking account services, makes various loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses.
investment banks
a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. they trade in foreign exchange, commodities, bonds and shares, derivatives
retail bank
A retail bank deals directly with individual customers and small businesses. It doesn’t have big
corporations or other banks as customers.
derivative markets
markets which trade financial instruments based on the values of other financial instruments
market rigging
where a group of individuals or institutions collude to fix prices or exchange information that will lead to gains for themselves at the expense of other participants in the market
