Topic 1 Flashcards
Bank of end does 6 tings….
Issuer of bank notes
Banker to gov
Banker to banks
Advisor to gov
Manages gold amd foreign currency for gov
Lender of last resort, makes funds avaible when banking system short on funds
Money has to be….
Suff n quantity
Generally acceptale
Divisible
Portable
What s equalibriun price
The cmpromise price, point at which supply and demand are equal
Fin market where short term borrowing known as..
Money markets
Fin market long term borrowng…
Capital markets
Retail involves….
Small amounts
Wholesale business invoves
Very Large amounts
Trans in repo market are….
Secured
Trans in interbank market are….
Unsecured
A repo is a….
Sale and repurchase agreement Commoly based on gilts Uses this as sec to loan money Legal own transfers But econmic own stays, so keeps coupons and gain in value as long as you pay back loan Primary market
Gilts are
Bonds issued by gov to borrow money for budget deficits
Have par value- usually same as purchase price
Rdm date-5-30 years usually
Pay coupon
Good security- used for repo
Interbank market
Unsecured
Banks lend each other large sums, overnight to 6 mths
Was asses mangmt now liability mngt ie find borrower-find money
LIBOR, EURIBOR
Lower credit rating, pay a premium
Treasury bills
Short term gilts, less than 1 year ,91 days
Dont pay interest but issued at a discount
Active secondary market for gilts and treasury bills
Cert of deposit
Form of savings ac where cert shows savings dep and sig penalties
Can be traded on sec market, if int rate is better than current values then it will trade for more than dep amount
Commercial paper market
Large companies need short term unsec borrowing
Investers who want to offer loans
V large amounts- pensions funds, ins co
Up to 1 year, 1-5 yr known as med term notes
Int rate determined by disc of face value
Companies roll over their paper cnstantly, main risk to investor is that borrow cant get new paper
Bonds
Gilts or similar for more than 5 yrs from organisations such as local auth, companies
Yield is..
Return on money invested
Market set the yeild expected,high risk = high yeild demanded
Coupon is fixed so price of bond is altered to adjust yeild
Eg 5/price paid x 100 = yeild
Corp bonds
Issued by companies with good credit rating for long-term projects
Standard and poor, and moody’s
Better rating less yeild demanded
Equity is
Diff between assets and liabilities
3 ways to issue shares
Prospectus- co offers new shares to the general public, inv bank responsiblity for disp to public
Private placement- inv bank provide info to prospective investors
Rights issue- to exting shareholder at a discount
Initial public offering is…
New private co issue first share to public- floatation
3 members of LSE
Agency brokers-clients agent, contacts marekt maker to complete at best price quickly
Marketmakers- hold stocks, make profits by predicting market
Broker dealers- buy share from client then sell on at profit
Foreign exchange, not a market where….
Money is borrowed or lent
4 reason to transfer between currencies…
Int trade in goods, services
Short term inv
Long term inv
From co perpective, what is purpose of equity market?
To lend money for long period to finance long term inv, ie branch opening…
Terms of comm paper, medium term notes and bonds
Up to 1 year
1-5 years
More than 5 years
