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financial markets > lecture 1 > Flashcards

lecture 1 Flashcards

1
Q

what are financial markets

A

markets where funds transferred

typically stock exchange

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2
Q

what role does financial markets play in the economy

A

provide info

allow for transfer of consumption timings

allocation of risk

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3
Q

what is direct financing

A

borrow fund directly from lender

assets to the buyer buy liabilities to the seller

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4
Q

what is indirect financing

A

use of financial intermediaries to help with financing such as car loans

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5
Q

what do financial intermediaries do

A

they bring together borrowers and lenders

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6
Q

what to economies of scale allow for

A

efficiencies in gathering info

transaction costs

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7
Q

what are the types of intermediaries

A
  • Building soc
    • Retail banking
    • Investment banking
    • Finance houses
    • Pension funds
    • Insurance comp
      • Investment pool vehicles
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8
Q

what are the type of investment pool vehicles

A

unit trusts
investment trusts
exchange traded funds (ETFS)
hedge funds

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9
Q

what are hedge funds

A

attempt to generate positive investment based on skill

only for the wealthy

very risks as based on market

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10
Q

what are exchange traded funds (ETFS)

A

set up as a company issuing shares

used to buy a collection of shares

open ended but trade like stock

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11
Q

what are investment trusts

A

tradable

invest in range of assets

price set by market
priced at premium sold at discount discount NAV puzzle

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12
Q

what are unit trusts

A

open ended funs units are brough and sold by fund managers

no limit
not traded on open market
priced at net asset value
divided into active and passive trackers

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13
Q

what is the net asset value formula

A

market value - liabilities / number of units

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14
Q

what is fintech

A

the application of tech in financial markets

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15
Q

what has fintech done

A

helped with disintermediation

allowed individuals to interact directly

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16
Q

what are the categories of financial markets

A

primary
secondary
exchanges
over the counter
debt markets
share equity markets
foreign exchange markets
derivative markets
money markets
capital markets

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17
Q

what are primary markets

A
  • New issues of a security sold to initial buyers
  • Not well known to the public
    Financial institutions which assist are investment banks
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18
Q

what are secondary markets

A
  • Securities previously issued can be resold
    • LSE
    • NYSE
    • Specialists
      ○ Brokers - agents of investors that match buyers and sellers don not hold portfolios
      Dealers - link buyers and sellers, hold a portfolio of securities
19
Q

what are exchange markets

A

Organised markets that provide physical meeting places and communication

20
Q

what is over the counter markets

A

Market with no central location

21
Q

what are capital markets

A

include longer term and riskier securities

22
Q

what are money markets

A

short term

23
Q

what is common to money markets

A
  • Large denominations
    • Low default risk
    • Short maturities
24
Q

what are certificates of deposit

A
  • Bank pays interest and principal at maturity
    • Cannot be withdrawn
      Sold on second markets
25
Q

treasury bills

A
  • Used by government
    • Traded
      Investors buy the bills at discount from FV and earnings are the difference
26
Q

what are commercial bill

A

Same as treasury bill but for companies

27
Q

what are banker acceptance

A
  • Firm issues doc that states bank will make payments in the future
    • Like a bill but the bank promises to pay
    • Less risky
      Smaller rates
28
Q

what are bills of exchange

A

a written order binding one party to pay a fixed sum of money

29
Q

what are sale and repurchase agreement

A

Securities are sold for cash with the promise to buy those back in future at higher price

The interest is the difference

30
Q

what is LIBOR

A

London Interbank Offer Rate
the premier short-term interest rate quoted in the European money market
Vulnerable to manipulation 2012

31
Q

what is SONIA

A

Sterling Overnight Index Average (managed by BoE average of previous day transactions)-SOFR equivalent US

32
Q

what is the stock exchange

A

Organised markets where government and industry can raise capital
Investors can buy and sell securities

33
Q

how many countries are officially recognised

A

140

34
Q

what is the LSE

A

Started in 18th century

No physical trading floor anymore

Both primary and secondary market

35
Q

what is the main market of the LSE

A
  • 25% of shares in public hands.
    Loss of some privacy and autonomy, e.g. greater disclosure of directors’ remuneration.
36
Q

what does AIM stand for

A

Alternative investment market

37
Q

what is the price at which the dealer buys on the exchange

A

the bid price

38
Q

what is the price at which a dealer sells called

A

the ask price

39
Q

what is the spread (exchange market)

A

difference between the bid and ask price

40
Q

what is the tick size (exchanges)

A

minimum price movement allowed 0.1p in the UK

41
Q

what is a limit order

A

buy or sell orders that are to be executed at a specified prices

42
Q

what are market orders

A

buy or sell orders that are to be executed immediately at current market prices

43
Q

what are clearing houses

A

a counterparty- eliminates default risk

complete the transaction - settlement

To ensure the buyer has funds for the trade investors set margin accounts with their brokers

44
Q
A

financial markets (1 decks)

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