Financial markets (Macro) Flashcards
Types of financial markets, and their respective purposes
What is the purpose of a financial market?
Allow transactions between those who wish to borrow and those who wish to deposit money
What are the 3 types of market?
-Money market
-foreign exchange market
-Capital market
What is the money market for?
Short term finances such as monthly debt repayments
What is the capital market for?
Medium to long term finances for loans due in longer than a month.
What markets exist within the capital market?
Primary and secondary market
What is a bond for?
For governments to borrow money
What is sold in a primary capital market?
The issue of new bonds or share
What is sold in a secondary market?
Buying and selling of existing shares or bonds.
What is the foreign exchange market for?
Exchange of money for international transactions
Which markets exist in the foreign exchange market?
Spot and forward market
What is a treasury bill?
A short term bond issued by the government
What is the spot market?
For the immediate conversion of one currency to another
What is the forward market?
For the agreement to exchange currency at some point in the future, at a fixed rate.
Why does the UK need financial markets?
Often runs a budget deficit (expenditure > revenue), so it needs to issue bonds to finance that.
What is equity?
The value of share capital issued by firms as a part of financial capital
What is the coupon rate?
Fixed intrest on a bond
What is the maturity?
The date when the bond must be paid back
How to calculate yield on a bond?
(Coupon/ current bond price) * 100
