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10 Cards in this Set
- Front
- Back
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Financial markets |
Where buyers and sellers can buy and trade a range of services or assets that are fundamentally monetary in nature. They exist to meet the demand for services and to allow speculation and financial gains. |
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Role of the financial market |
To facilitate savings, they lend to buisnesses and individuals to allow consumption and investment, facilitate the exchange of goods and services. |
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Asymmetric Information (Market failure in the finacial sector) |
Financial institutions have more knowledge compared to their customers. This means they can sell more products that they do not need, are cheaper elsewhere or riskier than the buyer realises. |
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Externalities (Market failure in the finacial sector) |
There are a number of costs placed on firms, individuals and the government that the financial market does not pay. One example of this is the cost to the taxpayer of the financial crisis. |
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Role of the central bank |
They can control monetary policy through interest rates and controlling money supply in order to keep inflation low and stable. It acts as a banker to the government, as well as a bank to other banks. |
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Financial regulation |
Regulation can include: banning market rigging, preventing the sale of unsuitable products, prevent excessively risky lending. |
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Three key bodies of Financial regulation |
The FPC identifies and reduces system risk and supports government economic policy, the PRA ensures competition and the FCA protects consumers and promotes competition by preventing market rigging. |
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Quantitative easing |
A form of monetary policy used by central banks to increase the domestic money supply and spur economic activity. The central bank purchases government bonds and other financial instruments, such as mortgage-backed securities in order to stimulate growth, prevent deflation etc. |
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Forward market |
A marketplace that offers finacial instruments that are priced in advance for future delivery e.g commodities, foreign exchange market. |
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Financial market failure |
Where free financial markets fail to allocate financial products at the socially optimum level of output. |
