Financial markets

Question 1

what are financial markets?

Answer 1

where buyers and sellers can trade financial assets

Question 2

what are intermediaries?

Answer 2

example = commercial banks
- offer low rates of return to lenders and high interest rates to borrows with the main objective of making a profit

Question 3

give 2 examples of financial markets

Answer 3

• bond markets
• stock markets

Question 4

what are the 3 types of financial markets?

Answer 4

• money markets
• capital markets
• currency markets

Question 5

what are money markets?

Answer 5

short dated lending, usually between banks

Question 6

what are capital markets?

Answer 6

longer term lending (over a year)

Question 7

what are the 2 types of capital? (also give examples of each)

Answer 7

debt capital - return on debt is made through the interest that is paid by the borrower (e.g bonds)
equity capital - returns on the share of the business is made through dividends (share of the profit) (e.g shares)

Question 8

what are the 2 types of currency markets?

Answer 8

spot = buy the current exchange rate and receive it now
future = buy the current exchange rate, but receive it some time in the future

Question 9

why may some firms choose to use future currency markets?

Answer 9

if they expect a change in the exchange rate (for example in 6 months), they can buy the current exchange rate and receive it when they think the exchange rate will change, so they are protected from it

Question 10

what are the 4 functions of money

Answer 10

• store of value
• measure of value
• medium of exchange
• deferred payment