Financial Markets Flashcards
(31 cards)
what is the money supply
the total supply of money in the economy
types of money supply
- Narrow money (e.g. cash/credit/debit card)
- Broad money (narrow money + money tied up in savings accounts, cheques and bonds)
types of financial market
- Money market
- Capital Market
- Forex market
explain the money market
a market where you can buy and sell short-term financial assets e.g. short-term loans, overdraft
explain the capital market
a market where you can buy and sell long-term financial assets e.g long term bank loans
explain the foreign exchange market
a market where you can buy and sell currencies e.g. tourists purchasing currencies
two ways a firm can raise finance through debt
- Taking out a loan from the bank
- Borrow money from investors by issuing corporate bonds
what is equity
The percentage of a company you own e.g. 5% equity in Apple
how can a firm raise finance through equity
selling a percentage of the firm to investors through the use of shares
what is the maturity
when the final interest rate on a bond must be paid
what is the coupon rate
the annual interest rate received on a bond
how to calculate bond yield (interest rate)
Payoff/Bond price
two types of bank
- commercial banks
- investment banks
roles of commercial bank
- money into savings accounts
- withdrawing cash
- taking out a mortgage
roles of investment banks
- make investments e.g. Goldman Sachs
- write legal contracts for firms that want to merge
- commercial and investment e.g. HSBC
how do investment banks invest
buying shares in companies and selling them at higher prices to make a profit
what is a balance sheet
a record of a bank’s finances, showing how much money it has in assets and how much it owes in liabilities
what are assets in banks
anything that makes money e.g. cash, loans (as interest will be paid)
what are liabilities in banks
stuff the bank is legally responsible for e.g. deposits
what does a bank do with consumer deposits
they can either keep it as cash or attempt to make profit by giving it out as a loan, which is risky as if the consumer asks for it all back there will not be the full amount left, however this is unlikely (depends on how much bank loans out)
more cash =
more liquidity and vice versa
more loans =
more profits, but less cash so less liquidity meaning they may not be able to repay consumers
what does liquidity measure
how easily an asset can be turned into cash
banks face a trade off between
profit and liquidity
