Introduction to Financial Markets and Institutions

Vocabulary terms and definitions covering the functions of the financial services industry, methods of capital flow, ESG considerations, and the role of central banks based on the lecture material.

Financial intermediation

The process by which the financial system provides channels for funds to move from savers to borrowers, significantly reducing information and transaction costs.

Pooling and managing risk

A function of the financial services industry that allows multiple savers to invest in a wide variety of investments to reduce individual risk exposure.

Payments and settlement services

The function of the financial system that allows money and other financial assets to be moved and transactions to be completed via banks and clearing houses.

Portfolio management

A service provided by the investment industry that allows investors to manage their wealth through advice and investment management services.

Direct financing

A process where savers supply funds to borrowers by directly holding the debt and equity securities issued by those borrowers.

Open-ended investment companies (OEICs)

A type of investment institution, along with unit trusts, that performs an intermediation function in the financial system.

Clearing houses

Entities that provide settlement services by ensuring all necessary steps are taken to complete a financial transaction.

ESG

An acronym for Environmental, Social, and Governance factors incorporated into investing to mitigate risks and preserve long-term value.

Net-zero target date

The year by which many governments aim to achieve net-zero carbon emissions, which is $2050$.

Stranded assets

Assets that experience an unanticipated fall in value due to regulations and carbon taxes implemented by governments to mitigate environmental risks.

Central bank

A financial institution involved in setting the framework for other organisations, typically meeting an inflation target and acting as a lender of last resort.

Lender of last resort

A specific role of a central bank where it provides liquidity to the financial system during times of crisis.