Structure of financial markets and assets Flashcards
Money supply
the value of the stock of money that exists within an economy at a point in time
The role of financial markets?
shift money from those with a surplus of money they do not wish to spend to those who wish to spend more than they currently have
the money market
provides short term finances to individuals, firms and government
The capital market
deals with medium and long term finance, raising finance through share or bond issues
the foreign exchange market
deals with transactions requiring conversion from one currency to another
spot market
immediate conversion of one currency into another at current market exchange rate
forward market
agreement to buy foreign currency at an agreed exchange rate at some date in the future
bonds
form of borrowing giving the holder a fixed rate of interest and the money is repaid within a set period of time
role of financial markets in the wider economy
gov often finance budget deficits by issuing bonds to finance the short fall
stock of outstanding bonds represents the national debt
relationship between interest rates and bond prices
inverse relationship
if interest rates rise, bond prices fall
bond yield equation
yield = coupon on bond / market price of bond x 100
