4.1 The Structure Of Financial Markets And Financial Assets Flashcards
(42 cards)
What are the functions of money
- Medium of exchange
- store of value
- unit of account
- standard of deferred payment
What does a medium of exchange mean?
Bartering transactions rely on the person selling must also want to buy what you have = makes it difficult to complete transactions
money accepted as a medium exchange means no need to barter = allows for specialisation as safe knowing they can exchange for money
What does store of value mean?
Money can be stored away until needed and does not deteriorate
Why might store of value not be fully satisfied?
Inflation can erode the value
What does a unit of account mean?
Gives products a monetary value which enables people to compare prices and values of different products
What does standard of deferred payment mean?
Whereby people who don’t have money right now can buy products, knowing they can pay it back at a later date
What are the characteristics of money?
- acceptable
- portable
- durable
- divisible
- limited in supply
- difficult to forge
Why does money have to be in limited supply?
So it keeps it value
What is commodity money?
Any money that has intrinsic value and will always have it
E.g Gold
- “gold standard”
What is fiat money?
Has no intrinsic value, therefore if notes and coins become worthless from hyperinflation you cannot go trade it for something else - it has lost all value
What is liquidity?
How quickly something can be turned into notes or coins
What is the money supply?
The total amount or quantity of money circulating the economy at a given period of time
What is narrow money?
A measure of the highly liquid forms of money, such as notes and coins + deposits in banks that can be immediately changed into cash
What is Broad money?
A measure of all highly liquid forms of money = notes and coins + deposits + non cash financial assets of maturity dates of five years or less
Function of money definition
A benefit generated by the use of money
Characteristic of money definition
A necessary feature of money that must be present for the item to function as money
Financial markets definition
Financial markets are any place where buyers and sellers meet to trade financial assets
Who are the lenders?
Savers and investors
Who are borrowers?
Individuals, firms and governments
What are the three financial markets?
Money markets
Capital markets
Currency markets
What are money markets?
The market which deals with short-term loans or finance, typically of a maturity date of a year or less
What are capital markets?
The market which deals with medium to long-term loans or finance, which typically have a maturity of more than a year
What are currency markets?
Lol
What are bonds or debt capital?
A form of borrowing which gives the holder a fixed rate of interest and the money is repaid within a set period of time
