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IFM CHEATSHEET CHAPTER 2

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  CHAPTER 2: CENTRAL BANKS & MONETARY POLICY TYPES OF BANKS Retail bank: works with ordinary people.  Wholesale bank ( The Big Whales ): works with large scale financing and investment projects (Big Banks, Companies or Financial participants). Are the ones involved in interbank markets.  Central Banks ( The Bank of banks ): every bank must have a current account in CB to: Settle payments Access liquidity.  Their functions are: Lender of last resort. Monetary policy Ensure stability INDEPENDENCE OF BANKS Politicians cannot order day-to-day policy to: Anchor credibility and inflation expectations.  Avoid political cycles.  Build investor trust & financial stability.  GOALS OF EUROPEAN CENTRAL BANK MAINTAIN PRICE STABILITY → maintain INFLATION lower, but close, to 2% + support general economic policies.  Short term markets (Monetary markets) – affects interest rates ( i ).  ** To compute i you always need a reference risk premium. T...
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IFM CHEATSHEET CHAPTER 1

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  CHAPTER 1: INTRODUCTION TO FINANCIAL MARKETS  WHAT ARE FINANCIAL MARKETS?  They are the place (physical or virtual) where financial instruments are issued, bought, and sold. Goal: allocate scarce resources efficiently → channel savings (investors) to productive uses (borrowers). Core functions: Mobilize savings 2. Provide liquidity 3. Price discovery 4. Manage risk 5. Facilitate trade  Being rational VS. being IRRATIONAL : emotional (being human beings which have experience, and live according to it) → behavioural finance : we are not created to invest, but to avoid risk.  FM OVERVIEW I: MONEY → Central Banks & Banks (Chapter 2) Money: is any asset accepted as/ to: 1. Medium of exchange 2. Unit of account & 3. Store value MONETARY AGGREGATES – ECB M0→ currency in circulation ( + banks reserves at CBs ) M1→ currency in circulation + deposits M2→ M1 + Deposits < 2 years M3→ M2 + REPOS + Money Market fund + Short term debt TYPES OF RISK Market ris...
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