Financial Markets Flashcards
Capital markets
Enable individuals and institutions to trade financial securities, so enabling organisations in private and public sectors to gain long term finance
Money markets
Markets for short term loans such as treasury bills and certificates of deposits
Derivatives market
Financial instruments, eg future contracts whose price depends on the value of the underlying assets
The foreign exchange markets
The market in which currencies are traded
Role of financial markets
Facilitate savings, lend to businesses and individuals, facilitate the exchange of goods and services, to provide forward markets in commodities and contracts, to provide a market for equities
Market failure in financial sector: Asymmetric information
Where one party knows more than the other
Market failure in financial sector: Moral hazard
Lack of incentive to guard against risk where protected from consequences
Market failure in financial sector: Speculation and market bubbles
Assets raise above their value
Market failure in financial sector: Externalities
A cost/ benefit that affects a third party. Who didn’t choose to incur the cost/ benefits
Market failure in financial sector: market rigging
When some of the companies in a market act together to stop a market working as it should in order to gain an unfair advantage.
The role of central banks
Implementation of monetary policy, banker to the government, lender of last resort, regulation in bank industry
