The role of the financial sector

What are financial liquid assets exchanged in?

Financial markets, such as the stock market and bond market.

How has the financial sector changed in the UK?

It has become more important to the economy in recent years.

How do financial markets facilitate saving?

They provide a place for consumers and firms to store funds, rewarded with interest payments.

How do financial markets facilitate lending?

They aid the transfer of funds between agents for investment or consumption.

How do financial markets facilitate the exchange of goods and services?

They make it easier for buyers and sellers to transfer real economic resources and complete transactions.

What is the role of the currency market?

It allows the trade of one currency for another.

What is a speculative attack on a currency?

It’s when investors sell a currency heavily, causing its value to fall.

What happens in commodity markets?

Investors trade primary products like wheat, gold, and oil.

What is a future contract?

An agreement to buy or sell an asset at a fixed price now, with delivery and payment later.

What is a forward market?

An informal market where contracts for future delivery are made.

What is an equity market?

A market where shares are traded, also known as the stock market.

How do firms benefit from equity markets?

Firms are able to raise to capital by issuing shares to the public, helping them invest (e.g. in expansion, research, and development).

How do investors benefit from equity markets?

Investors can own part of a firm and earn returns (dividends) based on future performance.

What is a dividend?

A share of a firm's profits paid to shareholders.