Financial Markets And Institutions Flashcards
(50 cards)
What is the main purpose of financial markets?
To promote savings and investment by providing mechanisms for lenders and borrowers to meet their financial requirements.
What are financial intermediaries?
Institutions that channel savings of individuals, businesses, and governments into loans or investments.
What is the role of the Bank of England (BOE)?
Central bank of the UK established in 1694, authorized to issue banknotes and protect financial system stability.
What does the Prudential Regulation Authority (PRA) do?
Responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers, and major investment firms.
What is macroprudential regulation?
Regulation that focuses on the stability of the financial system as a whole rather than individual firms.
True or False: The Financial Conduct Authority (FCA) regulates all financial services firms in the UK.
False. The FCA works alongside the PRA and regulates firms not supervised by the PRA, like asset managers.
List the functions of financial institutions.
- Re-packaging finance
- Risk reduction
- Liquidity transformation
- Cost reduction and advice
What are deposit-taking institutions (DTIs)?
Institutions such as banks and building societies that accept deposits and provide loans.
What distinguishes non-deposit-taking institutions (Non-DTIs) from DTIs?
Non-DTIs engage in lending activities but do not accept deposits.
What is the primary market?
The financial market where securities are initially issued and the issuer is directly involved in the transaction.
What is the difference between primary and secondary markets?
Primary markets involve the initial issuance of securities, while secondary markets involve the trading of pre-owned securities.
What do money markets deal with?
Highly liquid securities with maturities of one year or less.
Fill in the blank: The _______ is a key benchmark interest rate indicating borrowing costs between banks.
London Interbank Offered Rate (LIBOR)
What is the role of the Financial Policy Committee (FPC)?
Identifies and monitors systemic risks to the UK’s financial system and supports the government’s economic policy.
What are the main domestic financial markets?
- The Equity Market
- The Bond Market
- The Money Markets
- The Derivatives Markets
What is the London Stock Exchange (LSE)?
A major equity market where companies can be listed and trade their shares.
What is the Alternative Investment Market (AIM)?
A second-tier market of the LSE for smaller, younger companies seeking stock market listings.
What does the FTSE 100 represent?
An index of the largest 100 qualifying UK companies by full market value.
What are key performance statistics commonly reported for shares?
- Dividend yield
- Price:earnings ratio
What is liquidity transformation in financial institutions?
The process of bringing together short-term lenders and long-term borrowers.
What is the main function of insurance companies?
To protect clients against specified risks in return for payment of an annual premium.
What type of securities are traded in the money market?
Short-term debt instruments such as Treasury bills and commercial paper.
What is the significance of the Secured Overnight Financing Rate (SOFR)?
A benchmark interest rate to replace LIBOR for dollar-denominated derivatives and loans.
What is the primary market activity when a company goes public?
The company issues ordinary shares for the first time to raise finance.
