Money and Monetary Institutions Flashcards
Maturity
The date on which an issuer/borrower of a loan/bond must repay the principal amount & interest to the holder/investor
What’re the functions of money?
Medium of exchange; means of storing wealth & means of establishing value of future claims & payments
How does money get into the economy?
Central banks create the monetary base, made up of notes, coins and bankers’ deposits
Commercial banks create deposit money by expanding loans & deposits
Near money
Liquid assets which can readily be converted into cash, e.g. govt securities, foreign currencies, savings accounts
Notes and coin
All the currency in circulation outside the BoE
Retail M4
UK non-bank, non-building society holdings of notes + coins + retail deposits with UK banks + building societies
M4
Retail M4 + all other private sector deposits at banks + building societies + CDs
M3
M4 + residents’ foreign currency deposits in UK banks + building societies + public corporations’ sterling & foreign currency deposits in UK banks and building societies
Fiat money
Govt issued currency, e.g. sterling
What is the ratio approach of creating money?
A commercial bank has to deposit an amount, based on the reserve ratio, to the state bank and may not use this cash
Reserve ratio?
Reserve/deposit
What is the competitive environment approach of creating money?
Ratio is fixed & banks want to convince customers to increase their deposits so that their reserves will be high
What does the IS curve show?
All combo’s of GDP and IR for which aggregate desired spending (AE) = actual output (Y)
Function of a central bank?
Plays a large role in the nation’s payments system, provides loans during times of financial stress + oversee commercial banks and financial system to ensure confidence over operations
What is the BoE aims?
Decisions made for price stability (inflation target) and secondary aim of supporting govt policies, help meeting targets for growth & employment
