Topic 1 Flashcards
(18 cards)
what are equity markets?
shares/stocks of ownership of firms’ assets
i.e., residual rights to profits, limited liability
what are bond markets?
where debt securities, both government and corporate, are traded, facilitating the transfer of capital from investors to issuers seeking funds.
what are commodities markets?
e.g., foodstuffs, energy, materials including precious metals (not financial, but relevant here)
what are spot markets?
a public financial market in which financial instruments are traded for immediate delivery
basic distinctions/features of public markets:
very large/liquid, price information freely
available
contracts for future delivery of a commodity is traded where? (2 PLACES)
-commodity futures exchanges
- financial futures exchanges
what are derivatives?
instruments which derive their value from an underlying asset/ commodity
what is the strike/ exercise price?
the price set at a specific time for a future purchase
what is a call option?
buying the right, but not the obligation, to buy another asset
what is an equity call option?
the right to buy, say, 1000 Tesla shares in
one month’s time at a specific exercise price, say $900
what are equity options?
buy a call option on a share
what is the interbank market?
overnight/short-term borrowing and
lending between banks
what is the repo market?
secured overnight/short term lending
(mainly banks)
what is the primary market?
when and where a bond/share is initially issued
what is the secondary market?
where bonds/shares can be traded on open/organised/ public markets, and can be continually priced
why are financial markets created?
-price discovery/setting
-raising, allocation of, capital
-consumption smoothing over time
-risk management
-facilitating payments
what is consumption smoothing?
how consumers change their spending patterns based on changing income levels
