Financial Markets Flashcards
What are financial markets?
They are any place where buyers and sellers can trade financial assets. It brings lenders and buyers together.
What does intermedaries do?
They use money from lenders to give to borrowers. They will pay a return to a lender. They will charge a higher interest rate to the borrower and they make a profit.
What are the 3 types of financial markets?
Money markets
Capital markets
Currency markets
What does the money market deal with?
It deals with assets which have a maturity or a pay back date of a year or less.
What does capital markets deal with?
It deals with assets with a pay back date of more than a year. Mainly shares and bonds with a long maturity.
What is the difference between debt capital and equity capital?
Debt capital is an asset which pays back an interest rate whereas equity capital is a stake or share that has a return in the form of a dividend.
What are the 2 types of capital markets and whats the difference?
Primary and secondary markets.
Primary is where brand new bonds or shares will be issued.
Secondary is where bonds and shares can be bought and sold AGAIN .
What are the two types of currency markets and what differentiates them?
spots and futures markets.
Spots markets is where currency is bought at the current exchange rate and delivered immediately.
Future markets is where currency is bought at the current exchange rate but is delivered later in the future.
Why would someone engage in futures?
Fears for increase in costs of materials for the future. They will buy imports now at the current exchange rate but let it be delivered later.
Speculators may buy a currency now expecting exchange rates to get stronger. They will have it delivered in the future and then they will sell it at the stronger exchange rate for a profit.
