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Economics 4.4.2
Economics- Edexcel 4.4.2
| Term | Definition |
|---|---|
| Asymmetric information | when one individual or party has more information than another individual or party and then uses that advantage to exploit the other party for commercial advantage |
| Positive externality | when a market transaction has positive consequences for a 3rd party |
| Negative externality | when a market transaction has negative consequences for a 3rd party |
| Contagion effects | spread of an economic crisis from one market or region to another and can occur at domestic and international levels |
| Systemic risk | spread of an economic crisis from one market or region to another and can occur at domestic and international levels |
| Examples of external costs arising from financial crises | taxpayers, depositors,creditors,shareholders,lost jobs, government,businesses |
| Moral hazard | where an individual or organisation takes more risks because they know that they are covered by insurance or they expect that the government will protect them from any damage incurred |
| Speculative bubble | sharp and steep rise in asset prices |
| What fuels a speculative bubble? | high levels of speculative demand which takes market prices of financial assets well above fundamental values |
| What factors can cause a speculative bubble? | herd behaviour, exaggerated expectations of future prices rises, irrational exuberance of investors, period of very low monetary policy interest rates |
| Market rigging | when some of the companies in a market act together in an anti-competitive way to stop market working as it should to gain an unfair advantage |
| Price rigging | when parties conspire to fix or inflate prices to achieve higher profits at the expense of the consumer |
| oligopolistic | a few companies rule over many in a particular market or industry, offering similar goods and services |
| Examples of barriers to entry into commercial banking | regulatory barriers, natural or intrinsic barriers to entry, strategic advantages of larger banks, first mover advantages |
| Regulatory barriers | like the need to be given a banking licence by the central banks |
| Natural or intrinsic barriers to entry | costs of entering the market |
| Strategic advantages of larger banks | includes gains from vertical integration, branch network and low rates of customer switching |
| First mover advantages | including strong brand loyalty for established banks |
| Established commercial bank challengers | first direct, metro bank, tsb, virgin money |
| AAA | highest credit rating for a bond or company |
| annuity | guarantees a regular income for the rest of your life in return for paying over a sum from a pension fund |
| asets | items owned by an individual such as property and investments |
| Base rate | interest rate set by bank of england which is used as a benchmark by uk lenders |
| Bear market | market where prices are falling against background of gloomy investors |
| blue chip | well established businesses regarded as relatively safe |
| bond | lower to medium risk loans to the government or companies |
| commodities | raw materials and foodstuffs traded in financial markets |
| cyclicals | companies whose business prospects and share valuations are linked closely to the economic cycle |
| Default risk | possibility that issuer of a bond will be unable to make payments when they are due |
| deflation | fall in the general price level of goods and services in the economy |
| derivatives | futures and options which are an arrangement to buy or sell an asset on a fixed future date at a price agreed today |
| diversification | spreading your investments to help reduce risk within your investment portfolio |
| dividend | payment by company to its shareholders |
| Junk bond | high-risk bond of below investment grade |
| Leveraged loan | loan provided by a group of lenders |
| liquidity | how quickly an asset can be traded and turned into cash |
| Negative equity | when the amount left to pay on a mortgage is greater than the value of the related property |
| risk | balance of potential loss and potential gain is perceived by the investor |
| volatility | measure of how much an investment’s price is likely to fluctuate during a set period |
| yield | measure of the return on an investment compared to the price paid for it |
Created by:
jessharris
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