Topic 4 - The structure of financial markets

Question 1

What are the functions of money?(4)

Answer 1

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

Question 2

What are the types of money

Answer 2

Broad and Narrow

Question 3

What is broad money

Answer 3

money which is not easily accesed

Question 4

What is narrow money

Answer 4

Easily accessed money

Question 5

What is the supply of money

Answer 5

The total amount/value of money in an economy

Question 6

Is the value of all the money just cash

Answer 6

No, it can be things like houses (assets)

Question 7

What is liquidity

Answer 7

The ease of converting something to cash

Question 8

What is something that would be liquidable

Answer 8

Cash, savings accounts

Question 9

What is something that would not be liquidable

Answer 9

Physical assets, e.g houses

Question 10

What are the types of markets(4)

Answer 10

Financial
Money
Capital
Currency

Question 11

What is a financial market

Answer 11

Where assets are traded, e.g. stock markets

Question 12

WHat are money markets

Answer 12

where short term loans and trades are made (upto 12 months )

Question 13

What are capital markets

Answer 13

Where longer terms trades and loans are made (12 months +)

Question 14

What are currency markets

Answer 14

Where foreign exchange (currency) is traded

Question 15

What are spot exchange rates in currency markets

Answer 15

Where the exxchange of money is done at current exchange rates, done at that moment

Question 16

What are foward exchange rates

Answer 16

Where the exchange of money , is done at a set exchange rate- more likely done over long term or the future

Question 17

What is an asset

Answer 17

Something someone owns

Question 18

What is a liability

Answer 18

Something someone owes

Question 19

What is equity

Answer 19

The assets or percentage people own of something

Question 20

What is debt

Answer 20

The amount people owe

Question 21

How can financed be raised(3)

Answer 21

Selling shares
Coorporate bonds
Government bonds

Question 22

What are government bonds

Answer 22

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.

Question 23

What is a coorporate bond

Answer 23

Bonds issued by coorpirations

Question 24

What is the amount of interest earned back also known as

Answer 24

A coupon

Question 25

What is the day the bond end also known as

Answer 25

The maturity date

Question 26

What is the inverse relationship between bonds and interest rates

Answer 26

If bond prices increase, the interest rate(on the bond) will fall

Question 27

What is the formula for calculating the interest on bonds

Answer 27

coupon/Bond current price x 100