Chalter 1 - Finacial Markets and Institutions Flashcards
(40 cards)
What are the four main functions of the financial services industry?
- financial intermediation
- pooling and managing risk
- provision of payment and settlement services
- portfolio management
These functions enable the efficient operation of financial markets and institutions.
What are the main types of financial institutions?
- central banks
- deposit institutions (such as banks)
- investment institutions (such as insurance companies, collective investment funds, and pension funds)
Each type plays a unique role in the financial system.
What are the four important economic functions performed by governments?
- provision of certain goods and services (e.g. defence)
- regulation of markets to protect consumers
- improving the distribution of incomes through taxation and welfare payments
- maintaining economic stability
These functions help ensure a balanced and fair economy.
What distinguishes real assets from financial assets?
Real assets are physical assets such as land, buildings, and gold. Financial assets are claims representing the right to some return or ownership of physical assets.
Understanding this distinction is crucial for investment strategies.
What are the main functions of securities markets?
- raising capital
- transferring risk
- price discovery
- creating liquidity
These functions are essential for the efficient operation of financial markets.
What is the primary market?
The primary market is where initial sales of securities are made.
This is distinct from the secondary market, where subsequent trading occurs.
What are round-trip transaction costs?
Round-trip transaction costs are the total costs of completing a transaction, including bid-ask spread, commissions, and taxes.
Understanding these costs is important for assessing the profitability of trading.
What system does the London Stock Exchange use for FTSE 100, FTSE 250, and FTSE Small Cap constituents?
The London Stock Exchange operates an order-driven system called SETS
SETS stands for Stock Exchange Electronic Trading Service
What system is used for fixed-interest securities and AIM securities on the London Stock Exchange?
A quote-display system called SEAQ
SEAQ stands for Stock Exchange Automated Quotation system
What is the trading system for less liquid stocks listed on the main market?
SETSqx, which combines a periodic auction book along with quote-driven market making
What are UK Government bonds commonly known as?
‘Gilts’
Gilts are bonds issued by the UK government
Which department is responsible for gilt issuance in the UK?
The Debt Management Office (DMO)
The DMO operates under His Majesty’s Treasury
How may corporate bonds be issued?
Via an open offer or private placement
An open offer can involve a bought deal or fixed price re-offer
What is dual listing?
When two corporations function as a single operating business but retain separate legal identities and stock exchange listings
What characterizes an over-the-counter (OTC) market?
Trading in a decentralized way rather than on an exchange
What is CREST in relation to the London Stock Exchange?
An electronic settlement system that settles on a T+2 basis for equities and a T+1 basis for gilts
Who is the competent authority for the UK listing authority?
The Financial Conduct Authority (FCA)
What is the minimum requirement for listing on the main market in the UK?
Over £30 million of listed stock or £200,000 of debt securities
What are the listing criteria for AIM?
There is no minimum criterion for size, trading record, or shares in public hands
Who must declare share interests in UK equity markets?
Directors, major shareholders, and concert parties
What has the corporate governance system in the UK traditionally emphasized?
The importance of internal controls and the role of financial reporting and accountability
What must companies agree to when listed on the London Stock Exchange?
To abide by the continuing obligations of listed companies
