Summary Class notes - The Practice of Financial Markets

- The Practice of Financial Markets
- Mike Qinghao Mao
- 2014 - 2015
- Erasmus Universiteit Rotterdam
- Economie en bedrijfseconomie
328 Flashcards & Notes
4 Students
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Summary - Class notes - The Practice of Financial Markets

  • 1414537200 Chapter 1

  • What are financial markets
    Markets in which funds are transferred from people who have an excess of available funds to people who have a shortage
  • For what are financial markets crucial?
    To promoting greater economic efficiency by channeling funds from people who do not have the productive use for them to those who do
  • Financial market activities have direct effects on
    personal wealth, behaviour of business and consumers, and the cyclical performance of the economy
  • What is a security
    It is a claim on the issuer's future income or assets. It is also called a financial instrument
  • What is an asset
    Any financial claim or piece of property that is subject to ownership
  • What is a bond
    A debt security that promises to make payments periodically for a specified period of time
  • How is the debt market also called?
    Bond market
  • What is an interest rate
    The cost of borrowing or the price paid for the rental funds
  • Where is the interest rate determined?
    On the debt / bond market
  • What means a high interest rate on personal level?
    Cost of financing would be high and it coult encourage you to save more because you can earn more interest
  • On what has the interest rate an impact on more general level?
    On the overall health of the economy, because it affect not only consumers' willingness to spend or save but also business' investment decisions.
  • What is common stock
    a share of ownership in a corporation. It is a security that is a claim on the earnings and assets of the corporation
  • Why is the stock market also simply called the market?
    Because the claims traded in the stock market are the most widely followed financial market. Almost every country has one.
  • How can you explain the market as best as possible?
    A place where people can get rich or poor quickly.
  • Why is the stock market an important factor in business investment decisions?
    Because the price of shares affects the amount of funds that can be raised by selling newly issued stock to finance investment spending. A higher price for a firm's shares means that it can raise a larger amount of funds.
  • What is the foreign exchange market?
    The place where funds are to be transferred from one country (currency) to another.
  • What is the foreign exchange rate?
    The price of one country's currency in terms of another's.
  • What happens when a currency get weaker?
    Products become more expensive in the country
  • What is a financial crises?
    Major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and nonfinancial firms
  • What is the most important financial institution?
    The central bank, this is the government agency responsible for the conduct of monetary policy
  • What involves monetary policy?
    The management of interest rates and the quantity of money, also called money supply (defined as anything that is generally accepted in payment for goods and services or in the repayment of debt)
  • What is the definition of a bank?
    A financial institution that accept deposits and make loans. It are also the financial intermediarie that the average person interacts with most frequently.
  • Why do we study financial innovation?
    Because it shows us how creative thinking on the part of financial institutions can lead to higher profits.
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Latest added flashcards

An increase in the foreign interest rate shifts the demand curve to the
left and causes the domestic currency to depreciate
Not all banks deal for their customers in the secondary market. True or false?
Foreign currencies that are deposited in banks outside the home country are known as
The theory of purchasing power parity cannot fully explain exchange rate movements becauses some goods are not traded between countries. True or false?
Callable bonds usually have a higher yield than comparable noncallable bonds. True or false?
When the bond price is at par, the current yield equals..
the yield to maturity
What are examples of investment intermediaries?
Finance companies, Mutual funds, and money market Mutual funds
From what companies do return funds select stocks en tend to be less risky than capital appreciation funds? 
From more large established firms
Most of the abuses are centered around what two activities?
Market timing and late trading (both open-end Mutual funds)
If the dollar depreciates relative to the Swiss franc, American computers will become less expensive in Switzerland. True or false?