financial markets

Question 1

liquidity

Answer 1

the ease with which an asset can be converted into cash. cash is the most liquid of all assets

Question 2

financial markets

Answer 2

markets where financial securities, such as stocks and bonds, are bought and sold. buyers and sellers come together to exchange trade services and assets that are monetary in nature

Question 3

nominal value

Answer 3

how much the bond is available for at the issue

Question 4

coupon

Answer 4

the stated interest payment made on a bond

Question 5

yield

Answer 5

the annual rate of return on a bond if the bond were held to maturity. {coupon / market price * 100}

Question 6

maturity date

Answer 6

the date when a bond will come due

Question 7

near monies

Answer 7

certain highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readily converted into currency or checkable deposits

Question 8

financial assets

Answer 8

assets not easy to turn into cash eg bonds

Question 9

narrow money supply

Answer 9

the amount of notes (currency) and coins in circulation in an economy plus balances in checkable bank deposits, known as Mo

Question 10

broad money supply

Answer 10

narrow money plus near monies, sometimes called M4

Question 11

money in current accounts

Answer 11

electronic money deposited in banks/building societies by people

Question 12

the money market

Answer 12

short term borrowing/lending, treasury/commercial bills, inter-bank lending (LIBOR). banks lend surplus cash reserves to each other every day

Question 13

the capital market

Answer 13

longer term debt and equity instruments are traded (financing for individuals/businesses)

Question 14

the forex market

Answer 14

trading different currencies, mostly speculative rather than for international trade purposes

Question 15

equity

Answer 15

share of a company

Question 16

treasury bills

Answer 16

short-term government securities issued at a discount from face value and returning the face amount at maturity

Question 17

commercial bills

Answer 17

are primarily short-term loans issued by financial institutions, for larger amounts (usually over $100,000) for a period of generally between 30 to 180 days

Question 18

bond

Answer 18

a formal contract to repay borrowed money with interest at fixed intervals. available to companies (corporate bonds) and government (gilts)

Question 19

shares

Answer 19

equal parts of the division of ownership of a corporation

Question 20

pensions

Answer 20

a fixed amount of money paid to a retired person by a government or former employer

Question 21

advances

Answer 21

commercial banks can create additional credit (electronic money) which they lend out to individuals/businesses

Question 22

commercial banks balance sheet

Answer 22

shows value of all things a business owns (assets) and value of all the things they owe to others (liabilities)

Question 23

systemic risk

Answer 23

the risk that the failure of one financial institution can bring down other institutions as well. banks are inter-related.

Question 24

moral hazard

Answer 24

investment bankers can take large risks with investments but are aware that they will personally bear very little of the risk. As a result, they may be inclined to act in a riskier way than is appropriate

Question 25

liquidity ratio

Answer 25

compares the more liquid assets in a bank to the short-term liabilities (current accounts and quick-access savings accounts) the higher liquidity ratio, the easier a bank can cover a ‘run on bank’

Question 26

capital ratio

Answer 26

compares all of the banks assets to all of its liabilities

Question 27

speculation and bubbles

Answer 27

speculation is rife in financial markets and this can cause market bubbles where prices go excessively high and these burst

Question 28

FCA

Answer 28

The Financial Conduct Authority - a financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. It focuses on the regulation of conduct by both retail and wholesale financial services firms.

Question 29

FPC

Answer 29

Financial Policy Comittee - A part of England that monitors and responds to risk posed to as and responds to risk posed to the entire financial services market. Its focus on the whole market makes it a macro-prudential authority.

Question 30

PRA

Answer 30

Prudential Regulation Authority - one of the two main regulators of financial services in the UK. (The other is the Financial Conduct Authority)

Question 31

debt

Answer 31

money which has been borrowed from a lender, which is usually a bank. There is little flexibility, and the loan is later repaid with interest.

Question 32

equity

Answer 32

a stock or security which represents interest in owning e.g. a firm, a car or a house. It is when there is no outstanding debt, such as when a loan for a car or a mortgage has been fully paid off. The owner’s equity is then the car or the house, which can be sold for cash.

Question 33

PPI

Answer 33

payment protection insurance

Question 34

savings

Answer 34

financial assets, eg money/stocks/shares, are a way of transferring purchasing power from the present into the future

Question 35

lending

Answer 35

borrowing money

Question 36

commercial banks

Answer 36

a financial institution that accepts deposits, offers checking account services, makes various loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses.

Question 37

investment banks

Answer 37

a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. they trade in foreign exchange, commodities, bonds and shares, derivatives

Question 38

retail bank

Answer 38

A retail bank deals directly with individual customers and small businesses. It doesn’t have big
corporations or other banks as customers.

Question 39

derivative markets

Answer 39

markets which trade financial instruments based on the values of other financial instruments

Question 40

market rigging

Answer 40

where a group of individuals or institutions collude to fix prices or exchange information that will lead to gains for themselves at the expense of other participants in the market