financial markets flashcards

Question 1

functions of money

Answer 1

accepted as a medium of exchange
store of value ( cant deterioate over time)
measure of value,( diff prices, goods different )
standard of deffered payment ( people can borrow money over time, lenders and borrowers)

Question 2

characteristics

Answer 2

• acceptable
• portable
• durable
• devisable
• limited in supply ( keeps its worth )
• difficult to forge ( avoid loosing faith in money)

Question 3

commodity vs fiat money

Answer 3

commodity -any money that has intrinsic value- gold
fiat -notes/ coins, no intrinsic value

Question 4

broad vs narrow money

Answer 4

M0- narrow and highly liquid measure of the money supply involves all cash , notes in the economy and deposits in bank accounts
M1-M4 less narrow - broad, adding more non-financial assets to the money supply, still relitively high liquidity can turn into cash within 5 years

Question 5

financial markets

Answer 5

where buyers and sellers come together to trade financial assets

Question 6

money market

Answer 6

buying and selling of financial assets that have a maturity/payback of less than one year e.g. corporate bonds, gpvernment bonds, interbank lending- LIBOR

Question 7

capital market

Answer 7

buying and selling of financial assets which have a payback of more than one year- less liquid

Question 8

debt capital

Answer 8

any financial asset that requires interest repayments for borrowing, e.g. owners of gov bonds are payed coupon payments, people who borrow from the bank pay bac interst payments - money that must be repaid over time along with interest payments, no ownership but have claim on assets incase of bankrupsy

low risk, fixed returns

Question 9

equity capital

Answer 9

this is high risk, no repayment.
ownership of the business therefore entitles to a share of the profits- in the form of dividens, payed by issuer

Question 10

primary vs secondary capital markets

Answer 10

primary- new bonds/ shares issued via the debt management office in the UK investment bank/ stock exchange

secondary- new bonds thta have been bought and sold again/ shares , investment bank/ stock exchamge

Question 11

currency markets

Answer 11

• spot markets, buy currency immediately and recieve ummediatlry at current exchange rate

-futures markets, buy currency at current exchange rate and recieve at a later date prehaps if sspeculate a depreciation in currency

Question 12

foreign exchange markets

Answer 12

currency bought and sold, facilitates international trade and investment