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