Macro M7 - Financial markets Flashcards
(37 cards)
What is the main role of commercial banks?
To be the intermediary between borrowers and savers
How do commercial banks make their profits?
By taking small, short-term relatively liquid deposits from savers and transforming these into larger, longer maturity loans
What services are provided by investment banks?
Underwriting, M&A advice, Trading on capital markets, Private equity investments
What do private banks do?
Provide wealth management services to high net worth individuals
What are building societies?
Owned by their members, they offer mortgages and savings products. Many also offer a broad range of retail banking products.
What are credit unions?
Small and local non-profit lending institutions. Owned by their members and are for people who cannot access banks or building societies
What is bank capital?
The value of the bank’s assets minus its liabilities
What are bank reserves?
Money and liquid assets held by banks in order to meet withdrawals from customers
Examples of a bank’s assets
Cash, balances at BofE, Loans (e.g. advances), securities (e.g. bonds), fixed assets (e.g. land)
Examples of a bank’s liabilities
Customer deposits, money owed to bond holders, money owed to other banks
What is a bank’s balance sheet?
A financial statement which reports a banks assets and liabilities
What are stable deposits?
Deposits that cannot be withdrawn quickly. Banks usually offer higher interest rates for them. They help banks control their ‘liquidity risk’
What is liquidity risk?
The risk that savers will want to withdraw their deposits and the bank is unable to pay
What is credit risk?
The risk of a bank lending to borrowers who turn out to be unable to repay their loans (default on their loans)
What are the three functions of money?
Medium of exchange, store of value, unit of value
What is fiat money?
Assets used to make transactions with no intrinsic value – the current way of exchanging goods and services
What is near money?
Assets which can be converted into cash without delays (Liquid)
What is non-money?
Assets which do not function as a medium of exchange due to encashment delays (Illiquid)
What is narrow money?
The narrowest measure of money. Only includes the most liquid assets
(Cash + Reserves)
What is broad money?
The largest measure of money within the economy. It includes narrow money as well as the least liquid assets
What is a bond?
A financial instrument which can be issued and sold to raise finance. Beholders receive periodic payments linked to the overall value of the bond until it matures.
What is a bond yield?
The annual coupon payment expressed as a percentage of the market price of the bond
What is a coupon payment?
A periodic payment that the bondholder receives during the time between when the bond is issued and when it matures
What are guilts?
Bonds issued by the government