Financial Markets

Question 1

Define Financial Markets ?

Answer 1

A financial market is any exchange that facilitates the trading of financial assets

Question 2

What are the different types of financial markets?

Answer 2

MONEY MARKETS=Provide short term finance by lending.

CAPITAL MARKETS=Provides long term finance through lending

FOREIGN EXCHANGE MARKETS= this is where different currencies are traded

Question 3

What are the roles of financial markets=

Answer 3

-To facilitate savings

-To lend to businesses and individuals

-To facilitate exchange of goods and services=To allow for transfer of money in order to allow exchange of goods and services.

-To provide forward markets=To allow for firms to buy currency in advance at a fixed costs. In the future.

-To provide a market for equities=Allow for a stock exchange.

Question 4

What is a liquidity trap?

Answer 4

When there is a low interest rates and savings are high.

Question 5

What are some financial market failures?

Answer 5

-Asymmetric info

-Externalities

-Moral hazard

-Speculation and market bubbles

-Market rigging

Question 6

Role of the central bank?

Answer 6

-Banker to bankers=lenders of last resort
-Banker to government
-Implement monetary policy
-Regulating the banking industry