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Financial markets - Coggle Diagram
Financial markets
Role of central banks
To implement monetary Policy
Quantitative easing
Banker to the government
Arranges loans for the governmetn
Lender of last resort
Willing to offer loans to financial institutions
Could lead to Moral hazard
Ensures liquidity to banks
Regulation in the banking Industry
Liquidity ratios
capital ratios
Funds to offset risky capital holdings
Roles
To facilitate saving
Turn savings into investments
Necessary for credit
To provide forward markets
An investment to ensure against price movements
Ensure business confidence
To provide a market for equities
Fund finance through stocks and shares
Failure
Asymmetric information
Banks may have more information than individuals
Individuals know their ability to pay back a loan
Moral hazard
Banks take risky decisions knowing that banks will bail them out
Externalities
Asset bubbles are negative externalities