Topic 1 Financial Institution Flashcards
(25 cards)
What is Direct Transfers
A world without FIs - corp have to sell stocks directly to investors
What is the 3 risk of Direct Transfers
High Monitoring Costs
Liquidity Preferance
Price risk
What is liquidity performance
Fund suppliers/ Investors like to hold cash. Hence they would prefer to be able to withdraw money whenever they like
What is Price Risk
Value of your security/ funds decreases
What is High monitoring costs
Time and resources is needed to monitor the borrowers to prevent case of fraud and also to find out their use of the funds
What is indirect transfers
A world with FIs - allow fund suppliers to channel fund to user through FIS. They act as intermediaries that collects funds from suppliers and lend out to users.
What is the 4 benefits of Indirect transfers (Rex played my dog)
Reduced monitoring costs
Provide liquidity and reduce price risk
Maturity intermediation
Denomination intermediation
What is the risks of indirect transfer (Darren flew cross italian money laundering T)
Default risk
Foreign exchange risk
Country risk
Interest rate risk
Market risk
Liquidity risk
Technological and operational risk
What is Financial Market
Market for exchange of capital and credit
What is the function of financial market
Provide a market place for investors to buy/sell
Provide regulatory framework
Collect disseminate info about price and trades
What is the 2 different financial markets
Money market
capital market
What is the difference between money market and capital market
Money market is usually used for short term financing while capital market is used for long term financing
What is money market
used for trading short term debt with maturity of a year or less
What is the two different capital market
Bond market Equity market
What is a bond market
A place where bonds are issued and traded long term (1 year or more)
What is a equity market
A place where companies raise funds through sales of their company’s shares
What is foreign exchange market
A global decentralised market for trading of currency
Who are the main participants of foreign exchange market and what do they do
Large international bodies where one currency is bought/sold for another
What is a financial Centre
a global city that is home to a large number of internationally significant banks, businesses and stock exchanges
What are the 4 Strong Financial Centre features
Robust Financial Environment
Healthy open trade and Capital Policy
Strong economics
Political environment
What is robust Financial environment
Presence of international financial institutions with a wide range and high volume of financial activities happening with the availablity of expertise
What is healthy open trade and Capital Policy
There is a strong external trade globally. It is a centre for investment, trade and capital movement.
A healthy trade and capital policy allows goods, services, and money to move freely across borders while keeping the economy stable and fair.
What is strong economics
There is stable GDP (gross domestic product), Low inflation, Strong currency and savings rate.
Political envirnoment meaning?
Have stable government, cleana nd non corrupped gov. and Biz oriented gov (support and encourage business to grow)
