Financial markets
- Created by: AJackman
- Created on: 17-05-17 16:02
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- Financial markets
- Role of the central bank
- Credit creation
- Bank deposits main form of money
- loans create further bank deposits
- limits to a banks ability to create credit
- leverage ratios
- averages 3% for small banks
- leverage ratios
- 1/reserve ratio
- Structure
- Capital market
- medium to long term finance
- Secondary
- Issue of previously issued securities
- stock market
- pension funds
- insurance companies
- Issue of previously issued securities
- Primary
- new issues of securities
- The Debt Management Office of the Treasury is part of this
- Investment banks help to organise the issues of new shares or corporate bonds
- new issues of securities
- Secondary
- medium to long term finance
- Money market
- market for short term finance
- interbank market
- commercial bills
- treasury bills
- market for short term finance
- The foreign exchange market
- spot
- forward
- Capital market
- Commercial vs investment banks
- commercial banks
- lending to economic agents
- accepting deposits
- providing an efficient means of payment
- Also providing foreign currency and other financial services
- Balance sheet
- Assets
- financial claims the bank has against others
- Egs include cash, balance at the B of E, money at call, bills, bonds, loans, premises
- financial claims the bank has against others
- Liabilities
- Claims other people have on the bank
- E.g include share capital, reserves (profit), long term borrowing, short term borrowing, deposits
- Claims other people have on the bank
- Trade off between liquidity and profitability
- Debt & equity
- Debt
- bills, bonds, loans
- equity
- shares
- Debt
- Assets
- investment banks
- Help companies raise finance
- Issue of shares and bonds
- Help with privatisation of government industries
- Financial advice with mergers
- buying and selling securities
- commodity trading
- Help companies raise finance
- Bonds
- Nominal price
- its original price
- market price
- current value
- coupon
- fixed interest stated on nominal price
- e.g. coupon is £4
- fixed interest stated on nominal price
- yield
- annual interest as a % of the market price
- Yield = the coupon/market price x 100
- annual interest as a % of the market price
- Nominal price
- commercial banks
- quantitative easing
- The purchase of bonds by Bank
- raises price and reduces yield
- sellers buy other assets reducing yeild
- lower yield reduces interest rates
- increases C & I
- Bank deposits increase
- increases funds for lending
- regulation
- Financial Conduct Authority (FCA)
- Prudential Regulation Authority (PRA)
- The Financial Policy Committee (FPC)
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