Financial Markets and Monetary Policy Flashcards
(14 cards)
financial market
where buyers ad sellers can trade services or assets that have a monetary nature
examples of financial markets
money market
capital market
foreign exchange market
commodity market
money market
provides short term savings and lending
(macro version of a commerical banks current account)
capital market
market that provides long term financing
(macro version of a commerical banks long term saving account / mortgage)
foreign exchange market
currency is bought and sold
commodity market
trade of raw materials or primary agricultural goods
derivative market
financial investments are sold
e.g. stock market
roles of a market
lending and borrowing
saving
facilitating exchanges of goods and services
provides a market for equities (owning part of a firm/ stocks/ shares)
forward markets
agreeing on a price for the future
(usually used for commodities because they have more volatile prices depending on yields / less predictable supply)
agreement on a price in advance to keep economy stable
market failure in financial sector
lack of regulation (big bang 1987 - 2008 crash)
competition / market rigging
asymetric information (e.g. unfair prices)
moral hazard
speculation / market bubbles (e.g. housing market 1990s)
externalities on 3rd parties
moral hazard
a situation in which the behavior of one party may change to the detriment of another after the transaction has taken place
market bubbles
when a specific asset rises in price then falls really quick or vice versa
e.g. house prices 2020
central bank
bank of england
role of central banks
control monetary policy
banker to government
regulation
lender of last resort
manage currency / exchange rate
