1.4.1 role of banks in the economy Flashcards
(9 cards)
What happens when inflation rate is higher than the interest rate?
The real value of savings falls, discouraging people from saving, since their money loses its purchasing power.
What is the main source of income for commercial banks?
Interest, which banks earn through providing loans.
How do banks create credit?
By using deposited funds as loans.
What are cash credit loans?
Banks enter agreements with customers so money can be withdrawn several times a year. Banks deposit money periodically into the accounts of the customer.
What are loans on demand?
When the entire loan is paid into the account of the borrower, therefore the loan is charged with interest immediately.
What does the central bank manage? [3]
- The currency
- Money supply
- Interest rates
Who alters the interest rates in the UK?
The Monetary Policy Committee (MPC) apart of the Central Bank.
How many members are in the MPC?
9 who meet each month to discuss what the rate of interest should be.
What does collateral mean?
It refers to a secured loan, such as a mortgage where property is pledged against a loan.
