Financial Markets And Monetary Policy Flashcards
(19 cards)
Characteristics of money?
acceptable to all, portable, durable, easily divisible, not able to be counterfeited and scarce in supply.
What is the Money Market?
Short-term, highly liquid debt
securities
- including instruments like Treasury bills, commercial paper, and certificates of deposit; includes banks, financial institutions, and corporations seeking short-term financing or investments.
What is the Capital Market?
long-term debt and equity securities
- including stocks, bonds, and real estate investments; includes primary (new issue of shares) and secondary (existing bonds/shares are traded
What is the Foreign Exchange Market?
Currencies are bought and
sold
- facilitates international trade and investment
What are the 4 functions of money? (FoM)
• Medium of exchange
• Unit of account
• Store of value
• Standard for deferred payment
What is the medium exchange? (FoM)
Medium of exchange – money facilitates transactions between buyer and seller;
- specialisation and the division of labour requires a means of exchanging goods and services; money promotes this.
What is the Unit of account? (FoM)
Unit of account - a nominal unit of measure used to value/cost/price
products, assets, debts, incomes and spending
What is the Store of Value? (FoM)
Store of value – an asset that holds value over time
What is the Standard for Deterred Payment? (FoM)
Standard for deferred payment – the accepted way in each market to settle debt
What is a financial asset?
Financial assets are a type of asset that represents a claim to a future cash flow or a stream of payments
Such as:
Stocks
Bonds
Mutual funds
Exchange-traded funds (ETFs)
Derivatives
What is digital money?
Digital money, also known as electronic money or digital currency, refers to a form of currency that exists solely in electronic or digital form.
What is money supply?
The total quantity of money that is available for transactions.
It is typically categorised into different monetary aggregates based on liquidity and accessibility.
What is broad money?
Illiquid assets
Broad money includes savings accounts, time deposits, and other forms of near-money assets.
*includes M2,M3 and beyond
What is narrow money?
It includes physical currency (coins and notes) and checking deposits in banks.
M1 is used for day-to-day transactions.
*M1 represents the most liquid components of the
money supply
What are stocks?
Represent ownership in a company and pay dividends to
shareholders.
What are bonds?
A debt instrument that pays interest to the bondholder.
What are Mutual funds?
A pool of investments managed by a fund manager and offers diversification to investors.
What are Exchange Traded Funds? (ETF’s)
Similar to mutual funds but are traded on exchanges like stocks.
What are derivatives?
Instruments whose value is based on the value of an underlying asset, such as options and futures.
