Financial Markets Flashcards

Flashcards covering key vocabulary and concepts related to financial markets in Australia.

Primary Market

Where financial instruments like shares and bonds are sold for the first time, with money going directly to the issuer (government/business).

Secondary Market

Where financial instruments are resold between investors, with no financial gain or loss for the original issuer.

Australian Securities Exchange (ASX)

The major share market in Australia where the purchase and sale of shares in public companies occur.

Debt Market

Where debt securities (e.g., bonds, loans, mortgages) are exchanged, or cash is lent and borrowed.

Foreign Exchange Market

Where financial assets defined in one country's currency are exchanged for assets defined in another country's currency.

Derivatives Market

Where financial assets that are based on the value of other financial assets are bought and sold.

Consumer Credit Market

A market which includes debt that a person incurs when purchasing a good or service.

Share Market

Shareholders get dividends, potential capital gains, and limit to loses, companies get access to funds that may be cheaper than raising funds through debt, initial public offering

Individuals Borrow

Individuals borrow in the debt market for mortgages, personal loans, and credit cards, often when their demand exceeds their income.

Businesses Borrow

Businesses borrow to expand production, invest in R&D, issuing shares or debt, or loans from financial institutions.

Government Borrow

Governments borrow to fund budget deficits, increase economic activity, or fund new infrastructure projects by issuing commonwealth government securities.

Individuals Lend

Individuals lend by placing money into financial institutions for savings or returns, investing in assets, buying shares, or using interest-bearing deposits.

Businesses Lend

Businesses lend by investing profits in banks when there are no immediate plans to use the funds.

Transactionary Motives

Funds are held for day to day transactions and regular payments.

Precautionary Motives

Funds are kept aside to provide for future emergencies

Speculative Motives

Funds are kept aside to be invested in expectation of a higher return.

Money Supply

The total amount of funds in an economy that can be used as a medium of exchange, a measure of value, a store of value and a method of deferred payment.

M3

Consists of the money base plus all bank deposits

Broad Money

M3 plus all deposits in NBFI’s minus NBFI deposits in banks

Nominal Interest Rate

The interest rate before taking inflation into account.

Real Interest Rate

An interest rate that has been adjusted to remove the effects of inflation.

Monetary Policy

Actions taken by the RBA to change interest rates in the economy to change household consumptions and business investment

ESA's

Exchange settlement accounts a bank must have with the RBA.

Reserve Bank of Australia

Australia's central bank, in charge of conducting monetary policy and to oversee the stability of the financial system

APRA

Regulates and enforces guidelines set by the RBA for all deposit taking financial institutions.

ASIC

Responsible for monitoring the functioning of companies operating in Australia. Works to protect consumers and investors and maintain integrity in company processes

Australian Treasury

Advises the Government on financial stability issues, and the legislative and regulatory framework for the financial system