Financial Markets Flashcards
What are the 6 characteristics of money?
- acceptable
- portable
- durable
- divisible
- limited
- difficult to forge
What is the way of remembering the six characteristics of money?
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What are the 4 key functions of money?
- medium of exchange
- store of value
- unit of account
- standard of deferred payment
What is meant by money being a medium of exchange?
money allows goods and services to be traded without the need for a barter system
What do barter systems rely on?
a double coincidence of wants
What is meant by money being a store of value?
its value can be retrieved at a later date (means people can save now to fund spending at a later date)
What is meant by money being a unit of account?
it means that the value of something can be expressed in an understandable way, and in a way that allows the value of items to be compared
What is the way of remembering the 4 functions of money?
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What is meant by money being a standard of deferred payment?
this refers to the expressing of the value of a debt
What is the money supply?
the total amount of money circulating in the economy
Define narrow money
refers to any physical money, demand deposits, and other liquid assets that are easily accessible to central banks
Define broad money
a category for measuring the amount of money circulating in an economy
What is a bond?
a fixed interest loan security
Define an asset
any resources owned by a business that can be used to produce positive economic value
What is a coupon?
the amount of money that is paid periodically, such as each year, as interest on a bond
What is the yield for a bond?
the rate of return on the bond if held to maturity
What is meant by equity in a company?
the value of the assets owned by the shareholders
Define liquidity
the degree to which an asset can be converted into money without capital loss and within a short space of time
Define the liquidity ratio
the ratio of a bank’s cash and other liquid assets, to its deposits
Define the capital ratio
the amount of capital as a proportion of its total assets (loans)
Define regulatory capture
when a regulatory agency, formed to act in the public’s interest, eventually acts in ways that benefit the industry it is supposed to be regulating, rather than the public
What are capital markets?
financial markets which provide long-term borrowing and lending, usually defined as over one year
Define a commercial bank
a bank that provides services to businesses
Define a financial market
any convenient set of arrangements where buyers and sellers can buy or trade a range of services or assets that are fundamentally monetary in nature
Give 3 financial markets that investment banks engage a range of activities in
- foreign exchange market
- money market
- capital market
- derivatives market
What is shadow banking?
parts of the financial market that are either much less regulated than the norm, or are completely unregulated
What is systemic risk?
(in the context of financial markets) the danger that failure of parts of the financial system will lead to the collapse of the whole financial system
What does FPC stand for?
Financial Policy Committee
What is the Financial Policy Committee a part of?
the Bank of England
What is the role of the Financial Policy Committee?
to identify, monitor, and take action to reduce or remove systemic risk in the UK financial system
What does PRA stand for?
Prudential Regulation Authority