Financial markets and Financial assets pt3 Flashcards

1
Q

Money markets

A

Markets where highly liquid, short-term (maturing between a day and a year) financial assets are traded. These include commercial and treasury bills.

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2
Q

Foreign exchange markets

A

The largest markets in the global economy and where currencies are traded by large international banks, either for immediate exchange(spot markets) or for an agreed future exchange (forward markets).

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3
Q

Capital markets

A

For medium to long term financial instruments. This is where PLC’s (public limited companies)raise finance by issuing shares and bonds; where these are sold on and the government raises finance by issuing bonds (to finance a budget deficit for example.)To do this, the shares and bonds need to be attractive to investors.

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4
Q

Bond yield

A

Bonds are fixed interest securities. The interests are called coupons and are usually paid in 2 instalments every 6 months. The yield of a bond is a measure of how much it pays out compared with its current market value.
Yield=(Annual coupon payment/current market price) x 100

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5
Q

Bond yield vs bond price

A

They have an inverse relationship e.g. higher bond price = lower bond yield

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6
Q

Maturity

A

A bonds issue and maturity price are the same (you can redeem a £100 bond from 1975 for £100 in 2025). Bonds are a low risk investment as there is guaranteed interest. The market price of the bond fluctuates but goes to issue price at maturity as no one wants to pay more for a bond that will stay the same price or regress in price.

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7
Q

Speculation-A self fulfilling prophecy

A

Traders buy or sell depending on what they think will happen. It they expect a bond/share to rise they will buy now. If lots of other traders think the same they will also buy so the price increases (self fulfilling prophecy) and vice versa.

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