Financial Systems and Markets Overview

Vocabulary-style flashcards covering the fundamentals of financial value, risk, banking history, exchange principles, FOREX, and the role of innovation and environment in finance.

Future Value (FV)

The value of a current cash flow at a specific date in the future, calculated using the formula: $FV = \text{Present Value} \times (1 + (\text{Rate of Return} \times \text{Number of Periods}))$.

Discount

The reduction in the value of future money when calculating its present value, often represented by an interest rate, expected return, or cost of capital.

Credit Risk

The danger that a borrower will not repay a loan or fulfill obligations, leadings to a loss of principal and interest and increased collection costs for the lender.

Interest Rate Risk

The risk that changes in market interest rates, often driven by central bank decisions, will decrease the value of bonds and other fixed-income investments.

Temples (Historical Role)

The earliest forms of banks in ancient civilizations where people stored wealth for safety, managed by trusted priests who eventually began issues loans with interest.

Stock Exchange

An organized market where financial instruments like stocks and bonds are traded according to specific rules and regulations to ensure investor protection.

Principle of Supply and Demand

A stock exchange principle where prices rise if there are more buyers and fall if there are more sellers.

Principle of Liquidity

The ability to quickly buy or sell securities at the current market price.

Principle of Transparency

The obligation of companies listed on the exchange to publicly disclose their financial and business information.

BEST System

The electronic trading system used for facilitating the principle of electronic trading on the stock exchange.

FOREX

A global 24/5 international market for trading currency pairs, oil, metals, and stocks, known for high liquidity and volatility.

Leverage (FOREX)

A loan from a broker used to increase trading power, which amplifies both potential profits and potential losses.

Financial Engineering

A process involving the application of new technologies and financial innovations, such as electronic wallets and financial derivatives, to advance the financial system.

Climate Change Financial Impact

A disruptor affecting productivity in agriculture, increasing infrastructure costs due to sea-level rises, and causing damage through frequent storms and migration.

Artificial Intelligence (AI) in Finance

A technology used to process vast data to simulate market outcomes, determine asset values, and detect market manipulation or illegal activities like insider trading.