Topic 1: Introduction to Financial Markets Flashcards
(25 cards)
What are equity markets?
Markets where shares/stocks representing ownership in firms are traded.
What are bond markets?
Markets for debt instruments such as government and corporate bonds.
What are foreign exchange markets?
Markets where currencies are traded.
What are commodities markets?
Markets that trade physical goods like metals
What is the difference between public and private markets?
Public markets are open
What is the difference between spot and futures markets?
Spot markets involve immediate exchange; futures markets involve contracts for future delivery.
What is a derivative?
A financial instrument whose value depends on an underlying asset.
What are futures contracts?
Standardised contracts to buy/sell an asset at a future date.
What is an option contract?
Gives the holder the right
What is an option premium?
The cost paid to acquire an option.
What is the interbank market?
A market for unsecured short-term lending between banks.
What is the repo market?
A market for secured short-term lending using government bonds as collateral.
What is a primary market?
A market where securities are issued for the first time.
What is a secondary market?
A market where existing securities are traded.
Why do financial markets matter?
Price Discovery,Capital Allocation, Consumption Smoothing, Risk Management, Facilitating Payments
What are the key functions of financial markets?
Price discovery
What are current concerns about financial markets?
Speculation
What are some causes of asset price surges?
AI hype
What causes bond prices to fall?
Rising bond yields due to inflation and tighter monetary policy.
What is quantitative easing?
Central bank policy of buying assets to inject liquidity.
How are bond yields and prices related?
Inversely: when yields rise, bonds drop
What is a call option?
The right to buy an asset at a specified price in the future.
What is a put option?
The right to sell an asset at a specified price in the future.
What is yield?
The return on a bond investment.
