Financial markets

• What is money?


  Anything that is accepted by law as a means of payments for goods and services, considered legal tender.
• What are the functions of money?


  medium of exchange,

  
  

  Store of wealth.

  
  

  Unit of account,

  
  

  Means of deferred payment,
• What is the money supply?


  the stock of financial assets which function as money
• What is narrow money?


  notes and coins in circulation plus other highly liquid deposits
• What is broad money?


  Broad money includes notes and coins but other financial assets such as a savings account (near money).
• What are assets?


  Resources owned by people or organisations.
• What are liabilities?


  Debts owed by people or organisations.
• What is a financial market?


  Markets in which financial assets are traded such as stocks and shares.
• What is money markets?


  market for short term loan finance for businesses and households. Includes inter-bank lending. Acting as an INTERMEDIARY.
• What is the foreign exchange?


  Market where currencies are traded
• What is a capital market?


  A type of financial market made up of the new-issues market where shares are sold by investment banks and the second hand market such as the Stock exchange.
• What are the key roles of the financial markets?


  Facilitate saving by businesses and households.

  
  

  To lend to businesses and individuals.

  
  

  Allocate funds to productive uses.

  
  

  To facilitate the financial exchange of goods and services.

  
  

  Provide forward market in currencies and commodities insuring against price volatility.

  
  

  Provide a market for equities.
• How do financial markets facilitate saving?


  By offering a secure place to store money and earn interest.
• How do financial markets lend to businesses and individuals?


  Loan creation providing an intermediary between savers and borrowers.
• How do financial markets allocate funds to productive uses?


  By allocating capital to where the risk-adjusted rate of return is highest.
• How do financial markets provide a market for equities?


  Allowing businesses to raise fresh equity to dun their capital investment.
• How do financial markets facilitate the final exchange of goods and services?


  Through contactless payments etc.
• How do mobile payment systems increase cash flow?


  They facilitate spending and business growth.
• What can the financial markets do to encourage local entrepreneurship?


  Micro-finance schemes.
• How can the foreign exchange help businesses?


  Enabling firms to import materials and sell goods and services overseas.
• What is the importance of capital markets for the government and corporations?


  It enables them to raise fresh debt and equity.