Financial Markets and Institutions Overview

From the study guide

Financial Markets & Institutions 2 - Sheet

1. 📌 Essentials

  • Money functions: medium of exchange, store of value, unit of account.
  • Money evolved from barter, commodities, precious metals, to fiat and electronic forms.
  • Money supply components: currency, deposits, financial assets.
  • Key aggregates: M1 (cash + overnight deposits), M2 (M1 + short-term deposits), M3 (M2 + long-term deposits).
  • Money creation occurs via the fractional reserve banking system; multiplier depends on reserve ratio and public cash preference.
  • Basel III sets capital (CET1, Tier 1, Tier 2) and liquidity (LCR, NSFR) requirements.
  • Debt instruments include bonds and money market securities; valuation via discounted cash flows.
  • Equity ownership grants voting rights; valuation models include P/E, P/B, DCF.
  • Derivatives (futures, options) are used for hedging and speculation; Greeks measure sensitivities.
  • Private equity involves long-term investments in unlisted firms, with high risk and return.

2. 🧩 Key Structures & Components

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Practice quiz preview

1. What is the primary function of money in financial markets?

2. Which component is included in the M2 money aggregate but not in M1?

3. According to Basel III regulations, which of the following is a key requirement for banks to ensure financial stability?

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Flashcard preview

Money — functions?

Exchange, store of value, unit of account

Money multiplier — formula?

(1 + c)/(r + c)

Basel III — purpose?

Set capital and liquidity standards for banks

Money functions?

Medium of exchange, store of value, unit of account.

Money evolution?

Barter, commodities, precious metals, fiat, electronic.

Money supply components?

Currency, deposits, financial assets.

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