Week 0 - Financial Instruments Flashcards
What is the main function of the Financial Market?
To make money/funds flow from agents with excess funds to agents in need of funds.
True or False, funds and money are synonyms?
True
What is the predominant form of money in the modern economy?
Deposits at commercial banks
What is the most frequently used form of money?
Bank Deposits (in transaction accounts)
Who creates and designs financial instruments? What instrument is the exception to this rule?
The entity that requires funds. The exception is a loan which is designed by the provider.
What market are newly created financial instruments traded in?
The primary market.
What is the Capital Gain on a security?
The difference between the selling price and the buying price.
In Australia, how often are coupons paid?
Every 6 months
What are 3 types of assets for a non-bank entity?
1) Money
2) Real Assets
3) Financial non-monetary instruments (owned)
What are 4 types of liabilities for a non-bank entity?
1) Financial Debt Securities Issued
2) Bank Loans
3) Credit Card Balances
4) Bank Account Overdraft
What are 2 types of Equity for a non-bank entity?
1) Shares Issued
2) Current and Past retained profits
Describe the balance sheet changes when Mr. Smith is paid his monthly Wage,
Assets increase
Equity (cum. savings) Increase
Describe the balance sheet changes when Mr. Smith buys a transient good (i.e. incurs an expense).
Assets Decrease
Equity (cum. savings) Decrease
Describe the balance sheet changes when Mr. Smith buys a real asset.
Assets (Bank Deposits) Decrease
Assets (Real Asset) Increase
Describe the balance sheet changes when Mr. Smith moves moves his money to a savings account.
Assets (Bank Deposits) Decrease
Assets (Savings Account) Increase
