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financial markets Flashcards

(62 cards)

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1
Q

the four functions of money

A

medium of exchange
measure of value
store of value
method of deferred payment

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2
Q

money as a medium of exchange

A

would have to barter without it

easily facilitates the exchange of goods as no double coincidence of wants is needed

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3
Q

money as a measure of value

A

helping consumers and producers make informed decisions and facilitating agreeable exchanges between buyers and sellers.

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4
Q

money as a store of value

A

holds its value over time, allowing it to be saved and remain useful for exchange, though inflation can affect its value.

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5
Q

money as a method of deferred payment

A

facilitates credit by enabling terms for loans and future debt settlements, allowing goods to be acquired now and paid for later.

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6
Q

the characteristics of money

A

acceptability
portability
durability
scarcity
uniformity
divisibility

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7
Q

the characteristics of money: divisibility

A

currency must be divisible

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8
Q

the characteristics of money; acceptability

A

currency must be valued and widely accepted as meth to pay

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9
Q

the characteristics of money: durability

A

must not be easily defaced or destroyed

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10
Q

the characteristics of money: scarcity

A

must remain desirable and retain value
oversupply will decrease its worth

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11
Q

the characteristics of money: uniformity

A

each denomination must be the same

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12
Q

the characteristics of money: portability

A

easy to carry

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13
Q

what is money supply

A

total amount of money available in an economy at a specific time.
eg cash and deposits

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14
Q

narrow money

A

part of money supply made up of cash and liquid assets

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15
Q

broad money

A

M1 plus less liquid assets like savings accounts, time deposits, and money market funds.

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16
Q

What is liquidity

A

how easily assets can get turned into cash

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17
Q

financial markets

A

a place/system that provides a place to exchange goods and services

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18
Q

role of financial markets

A

Facilitate saving
lend to businesses and indvdls
Facilitate exchange of goods and services
Provide forward markets in currencies and commodities
Provide market for equities

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19
Q

three types of financial markets

A

money market
capital market
FEX market

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20
Q

the capital market

A

provide medium-long term finance
eg corporate and government bonds

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21
Q

what are government bonds

A

debt securities used by gov and sold to indvdl

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22
Q

what are corporate bonds

A

debt securities issued by companies to raise capital

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23
Q

what is the money market

A

short term finance (less than 1 year)
eg commercial bills issued by private businesses
treasury bills issued by gov

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24
Q

what is the FX market

A

trade currencies
central banks, commercial banks, investors and indvdls are participants in this market

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25
what is debt
liability that represents what firm owe
26
what is equity
all physical and financial assets owned by firm
27
difference between debt and equity
DEBT: no ownership rights, money must be paid back w interest and no voting rights EQUITY: shareholders have ownership rights, shareholder get profit through dividends, shareholders have voting rights
28
what are interest rates
costs of borrowing money or return on savings
29
what are bond prices
amount investor are willing to pay for government bonds
30
nominal value of bonds
bonds that investors buy at face value
31
coupon of bonds
guaranteed fixed annual interest payment to the investor
32
what is the maturity of bonds
date of expiration of the bonds more than a year leads to investment being illiquid
33
relationship between bond prices and interest rates
as interest rates rise bond prices fall (greater ROI) as interest rates fall bond prices rise (lower ROI)
34
how to calculate yield
annual coupon payment/ current market price x100
35
what are commercial banks
retail banks serve the general public but personal customers and businesses
36
what are investment banks
global banks that assist n raising finance for companies
37
characterstics of commercial banks
provides loans eg mortgages provide safe keeping for returns for deposits/ savings
38
examples of commercial banks
Barclays Natwest HSBC
39
network of commercial banks
in high streets and shopping centres
40
characteristics of investment banks
issue shares and bonds financial advisory services to businesses advice for companies undergoing mergers r acquisitions
41
examples of investment banks
jp morgan morgan stanley citigroup
42
investment bank branch network
situated within the square mile of the city of london
43
structure of commercial banks balance sheet
show assets and liabilities
44
what objectives do commercial banks face challenge trying to balance
liquidity security profitability
45
the money creation process fractonial banking
Initial Deposit: A customer deposits $100 into a bank. Reserve Requirement: The bank retains a portion (e.g., 20%) as reserves, keeping $20 and making $80 available for lending. Lending and Loan Creation: The bank lends out the remaining $80 to borrowers. Deposit Expansion: Borrowers deposit the $80 into their own accounts, which other banks can use as a basis for further lending. Money Supply Expansion: This cycle repeats, multiplying the original deposit into new loans and deposits, expanding the total money supply across the banking system.
46
monetary policy actions
interest rates exchange rates money supply forward guidance
47
factors to consider when setting bank rate
economic expansion- high EG low unemployment increases AD, central bank initiates contractionary monetary policy) economic contraction- recession decrease in AD bank initiates expansionary monetary policy
48
the instruments of monetary policy is
quantitative easing incremental adjustments
49
impact of a decrease in interest rates
exchange rates fall UK exports get cheaper
50
impact of an increase in interest rates
exchange rates rise UK exports become more expensive
51
using interest rates to lower inflation on graph if inflation high
contractionary monetary policy shifts AD to the left cus interest rates affect the components
52
using interest rates to increase inflation if too low
decrease interest rates go through demand side expansionary policy shifts AD to right stimulates the AD components
53
UK regulatory bodies
The prudential regulation authority (PRA) The financial policy committee (FPC) THE Financial conduct authority (FCA)
54
The Prudential Regulation Authority (PRA)
creates regulations for banks, insures helps to avoid insolvency of bank make sure they adhere to rules and regulations
55
The financial policy committee
to create financial stability identify, track and address risks to financial system in the uk
56
the financial conduct authority (FCA)
regulate financial srvices firms and financial markets ensure they are operating fairly and in the best interest of consumers
57
why banks might fail
regulation violation high-risk loans speculation and market bubbles asymmetric information
58
why are banks required to meet capital and liquid ratios
to evaluate their capacity to manage unexpected shocks
59
liquidity ratio
is the ratio of the banks' cash and other liquid assets to its deposits measures banks ability to cash needs
60
what is capital ratio
amount of capital on a banks balance sheet as a proportion of its loans to identify the risk associated with lending
61
what is moral hazard
when banks indulge in risky behaviour
62
what is systemic risk/failure
when a minor problem in one countrys financial sector has international consequences that can even break the entire financial system

Macroeconomics (7 decks)

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