Financial Markets and Institutions Overview

Revision sheet excerpt

Financial Markets & Institutions 2 - Sheet

1. 📌 Essentials

  • Money functions: medium of exchange, store of value, unit of account.
  • Money evolved from barter, commodities, precious metals, to fiat and electronic forms.
  • Money supply components: currency, deposits, financial assets.
  • Key aggregates: M1 (cash + overnight deposits), M2 (M1 + short-term deposits), M3 (M2 + long-term deposits).
  • Money creation occurs via the fractional reserve banking system; multiplier depends on reserve ratio and public cash preference.
  • Basel III sets capital (CET1, Tier 1, Tier 2) and liquidity (LCR, NSFR) requirements.
  • Debt instruments include bonds and money market securities; valuation via discounted cash flows.
  • Equity ownership grants voting rights; valuation models include P/E, P/B, DCF.
  • Derivatives (futures, options) are used for hedging and speculation; Greeks measure sensitivities.
  • Private equity involves long-term investments in unlisted firms, with high risk and return.

2. 🧩 Key Structures & Components

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Quiz preview

1. What is the primary function of money in financial markets?

2. Which component is NOT part of the traditional money supply aggregates?

3. Which component is included in the M2 money aggregate but not in M1?

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Flashcards preview

Money — functions?

Exchange, store of value, unit of account

Money functions?

Medium of exchange, store of value, unit of account.

Money multiplier — formula?

(1 + c)/(r + c)

Money evolution?

Barter, commodities, precious metals, fiat, electronic.

Basel III — purpose?

Set capital and liquidity standards for banks

Money supply components?

Currency, deposits, financial assets.

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The revision sheet covers the essential concepts of Financial Markets and Institutions Overview. It is organized by topic to facilitate learning and memorization, with key definitions, explanations and summaries.

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The quiz contains 10 multiple-choice questions with detailed corrections and explanations for each answer. Ideal for testing your knowledge and identifying gaps.

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