Finantial Sector Flashcards
Money supply
total amount of money in the economy
Narrow money
money that can be spent immediately
Broad money
money which is accessible in a larger time frame
money market
markets were short term money products like financial assets
Forex
Where you can buy a foreign currency
Dept
borrowing money from a bank or issuing a corporate bond
what is the maturity on a bond
when the government has incentive to give the firms interest on a bond
coupon on a bond
this is the interest rate
Yield eq
payoff // price x100
yield
the return on investment for a bond which is especially signignigivant when it is being purchased on a secondary capital market
commercial bias
banks providing services to the general public
investment bank
a bank manufacturing markers to make a profit
what type of bank is HSBC
HSBC is both a commercial and a high street bank
Balance sheet
a record of a banks finances separating assets and liabilities
What is the profit liquidity tradeoff
the level of risk the bank takes between profitability and lending and reserving funds to recompense deposits
liquidity ratio eq
Liquid assets // deposits
what is a liquidity ratio
how much reserves is there in relation to the amount assets and liabilities
capital ratio
how much capital a bank has compared to its loans
capital banking
money in the bank from the owners of the bank
capital market
this is the marker where capital goods are traded
capital includes bonds which are sold on the secondary market
unconventional monetary policy
typically a bank has the bank rate as a form of monetary policy
this was used in the response to the 2007 fc
QE, forward guidance, funding for lending
why forward guidance would be needed
with low animal spirits the potential increase in IR could cause a further decrease in Animal Spirits.
This could create confidence and suggest that interest rates would cause a worsening of animal spirits
forward guidance
post 2007 BE said that they would only increase IR when UP went down
banks and buisnessess could then plan for this
problems with forward guidance
when up increased the bank increased IR in 2014 unexpectedly
this broke forward guidance and it is unlikely to be trusted again
funding for lending
money to lend to buisnesses given to commercial banks by the bank of englainf
causes of FC
increase in selling sub prime morgages
created property bubble
adjustable rate mortgages
mortgages where the interest rate can be changed during the mortgage
how did the FC Bible increase
other institutions copied leighamn brothers
cost of FC
2.8 trl USD
banks like Leighman Brother s
Sub prime mortgages
mortgages are given to people who have low capacity to pay them back
4 types of financial monetary policy
asymmetric info
speculation and market bubbles
negative externaities
moral hazard
example of bubbles
.com bubbel
housing bubble
moral hazard
when the person taking a risk, who will reap the reward, will not feel the consequences
systemic risk
risk which affects the whole banking system
example son negative externalities from FC
a plumber who lost his job because the manager couldn’t get a loan from the bank
market rigging
when firms undertakes central prices of disturbing the price mechanism
FPC
not the monetary policy committee
-macroprudentail regualtion
-looks at macroeconomy
- would see high increase in house prices
prudential regulation authority
mico action taken by banks
the FCA
financial conduct authority- monitors actions by banks
