Financial Markets (banks)

Question 1

What is an investment bank

Answer 1

Banks that provide financial services for corporate and institutional customers

Question 2

2 Examples of financial services that investment banks offer

Answer 2

Proprietary Trading advice
Merger and acquisitions

Question 3

When were financial markets deregulated?

Answer 3

1970s

Question 4

What has deregulation of financial markets allowed for?

Answer 4

Allowed commercial and investment banking to operate under the same business name,
E.g. Barclays Bank

Question 5

What are the 5 main function of commercial banks

Answer 5

1. Accept savings
2. Lend to individuals and firms
3. Allow for payments between one person or firm to another
4. Act as financial intermediaries
5. Offer financial advice

Question 6

Commercial banking is split into two areas, which are:

Answer 6

Retail banking
Wholesale banking

Question 7

What is retail banking

Answer 7

Providing services for individuals and smaller firms (like savings accounts and mortgages)

Question 8

What are retail banks often known as?

Answer 8

High street banks

Question 9

What is wholesale banking

Answer 9

Dealing with larger firms’ banking needs

Question 10

How do commercial banks help firms grow?

Answer 10

Provide loans and financial advice but also by facilitating overseas trade

Question 11

What are the 3 types of financial market

Answer 11

1. Money market
2. Capital market
3. Foreign exchange market

Question 12

What is the money market

Answer 12

Provides shirt term finance to banks, firms and individuals.
This short term debt will have a maturity of up to a year but no longer

Question 13

What does maturity mean?

Answer 13

The repayment period

Question 14

What is the capital market

Answer 14

provides government and firms with medium-term or long-term finance

Question 15

What is the foreign exchange market

Answer 15

These are markets where currencies are bought and sold. Done to allow international trade and investment or speculations (to make money on fluctuations of currency prices

Question 16

The foreign exchange market is split into 2 different markets, which are:

Answer 16

The spot market
The forward market

Question 17

What is the spot market?

Answer 17

The market for transactions that will happen now

Question 18

What is the forward market?

Answer 18

The market for transactions that will happen at an agreed time in the future

Question 19

What is proprietary trading as a function of investment banks

Answer 19

When the bank uses its own funds to invest in financial assets for a better return than the market interest rate. People on the trading floor buy assets such as bonds and financial derivatives and will sell them at high value to make significant profit

Question 20

Market making as a function of investment banks

Answer 20

This practice involves banks holding a large quantity of financial assets to be able to buy and sell them whenever demanded thus creating a market for financial assets, usually bonds.

Question 21

Organising Merger and acquisitions as a function of investment banks

Answer 21

On behalf of clients, investment banks will organise mergers and acquisitions. Firms imitating mergers or takeovers of rival firms can seek advice on investments, advice on overcoming regulatory hurdles to ensure that competition policy doesn’t disrupt deals and business activities