role of financial markets Flashcards
what is exchanged in a financial market?
financial liquid assets are exchanged in a financial market e.g stock market, bond market
recall the roles of financial markets?
to facilitate saving
to lend to business and individuals
to facilitate exchange of goods and services
to provide forward markets in currencies and commodities
to provide a market for equities
how do financial markets facilitate saving?
- financial markets provide somewhere for consumers and firms to store their funds
- savings are rewarded with interest payments from the bank
why do financial markets lend to business and individuals?
- the transfer of funds between banks and agents is aided by financial markets
- funds can be used for investment or consumption
why do financial markets facilitate the exchange of goods and services?
- transfer of real economic resources are facilitated in financial market
- makes it easier to exchange goods and services from the physical market by providing a way that buyers and sellers can interact and transfer funds
why do financial markets provide markets in currencies and commodities?
- currencies can have speculative attacks taken on them which can affect the value of the exchange rate
- in commodity markets, investors trade primary products
- future contracts are a method for investing in commodities
- this involves buying or selling an asset with an agreed price in the present but a delivery and payment in the future
- a forward market in an informal financial market where these contracts for future delivery are made
what do equity markets do?
- equity markets involve the trade shares
- also called a stock market
- equity markets provide access to capital for firms and allow investors to own part of a market
- returns on the investment, usually in the form of dividends are based on future performance
- a dividend is a share of the firms profits
what is a currency market?
- currency market is another kind of financial market
- used to trade one currency for another
what are equity markets?
- equity markets involve the trade shares
- also called a stock market
what are primary products
is a good sold for production or consumption just as it was found in nature
also known as commodities
such as crude oil, metals, coal etc
what are the characteristics of money
easy to transport- durable
divisible
hard to counteract
valuable
generally accepted by the population
what is liquidity
how easily assets can be spent or turnt into cash
what is narrow money
measure of value of coins and notes in circulation and other money equivalents that are easily convertable into cash
what is broad money
measure of total money held by households and companies in the economy
mainly made up of commercial bank deposits
how will financial institutions role of facilitating saving help growth and development
allow people to transfer spending power from present to future by saving in a savings account or in holding stocks
allows consumers to smooth consumption over time
allow consumers to built up deposits for large purchases
Harrod domar model -> saving is needed for investment
