Topic 4 - The structure of financial markets Flashcards
What are the functions of money?(4)
To allow trade
To give value to goods and services
A store of value and wealth
Allowance for payments to be made at a later date
What are the types of money
Broad and Narrow
What is broad money
money which is not easily accesed
What is narrow money
Easily accessed money
What is the supply of money
The total amount/value of money in an economy
Is the value of all the money just cash
No, it can be things like houses (assets)
What is liquidity
The ease of converting something to cash
What is something that would be liquidable
Cash, savings accounts
What is something that would not be liquidable
Physical assets, e.g houses
What are the types of markets(4)
Financial
Money
Capital
Currency
What is a financial market
Where assets are traded, e.g. stock markets
WHat are money markets
where short term loans and trades are made (upto 12 months )
What are capital markets
Where longer terms trades and loans are made (12 months +)
What are currency markets
Where foreign exchange (currency) is traded
What are spot exchange rates in currency markets
Where the exxchange of money is done at current exchange rates, done at that moment
What are foward exchange rates
Where the exchange of money , is done at a set exchange rate- more likely done over long term or the future
What is an asset
Something someone owns
What is a liability
Something someone owes
What is equity
The assets or percentage people own of something
What is debt
The amount people owe
How can financed be raised(3)
Selling shares
Coorporate bonds
Government bonds
What are government bonds
Where you lend the goevrnment an gareed amount of money, for a set period of time, in return the government will pay you back a ‘coupon’ which is interest in the lent amount, when the period of time is over the lender will get the original amount back - this is called the maturity date.
What is a coorporate bond
Bonds issued by coorpirations
What is the amount of interest earned back also known as
A coupon
What is the day the bond end also known as
The maturity date
What is the inverse relationship between bonds and interest rates
If bond prices increase, the interest rate(on the bond) will fall
What is the formula for calculating the interest on bonds
coupon/Bond current price x 100
