T4 4.1 Financial markets

T4 4.1 Financial markets

What is the money supply

The entire stock of currency and other liquid investments circulating in a countries economy

What are the 4 functions of money

Medium of exchange

Standard of differed payment

Measure of value

Store of value

What is narrow money

Measure of the value of the notes and coins in circulation that are easily convertible into cash

What is broad money

The most inclusive definition of MS. The total money held by households and businesses in an economy

What are factors affecting the supply of money

Open market operations (essentially the same as quantitative easing

Factors affecting the demand for money

Interest rates on loans

Rate of anticipated inflation (purchases brought forwards)

What is the liquidity coverage ration (LCR)

To mitigate liquidity risk deposit takers are required to hold sufficient regulatory liquidity

The LCR requires banks to hold sufficient cash to cover net cash outflows during a 30 day liquidity stress scenario

What is a financial market

A financial market is any exchange that facilitates the trading of financial instruments, such as stocks, bonds, foreign exchange or primary commodities such as oil and gas