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  2.  
  3. PEARSON (PEARSON)
  4.  
  5. Economics A
  6.  
  7. Unit 4 - A global perspective

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A* summary for financial market

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EXAM IS COMING!!!!! This is everything you need for this topic! I got A* studying this, soooooo it will probably reduce your time and effort to find a tutor and it will be more beneficial than your class notes!!! Check out for other summaries in my uploads.

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  • Theme 4
  • January 20, 2023
  • 5
  • 2022/2023
  • Summary

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4.4.1 Roles of financial markets
FM: A financial market is any exchange that facilitates the trading of financial
institutes e.g. cash, bonds and stocks


 To facilitate saving
 To lend to businesses and individuals
 To facilitate the exchange of goods and services (銀行卡,轉帳…)
 To provide forward markets in currencies and commodities
(pay for agree price today and deliver the good in the future to avoid volatile price)
 To provide a market for equities (=selling shares/IPO)


Why is FM important? (Government, consumer, firms)
1) Encourage Investment (Harrod Domar model) Allow
2) Encourage consumption through borrowing (C is 60% of GDP) economic
growth
3) Allow government to issue bonds and repay its debts




1.4.2 Market failure in financial sector
The FM can create a systematic risk = Knock on effect for other banks and savers lose
lots of money…..  decrease economy growth
(When one firm fail, other fail  becoz savers lack confidence in banks  everyone takes out their money 

complete systematic failure  economic downturn)

Types:
 Moral hazard
 Asymmetric information
 Speculation
 Market rigging
 Externalities


a) Consideration of:
 Moral hazard
(Bailed out by government or future tax payers if anything gone
wrong//everyone will be getting money from the bank  carnage!!!)
E.g. bailing out RBS

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