1.4.1 Role Of Banks In The Economy Flashcards
(18 cards)
If interest rates are low what is the reward for saving
Low
How does the real value of savings fall
If the inflation rate is higher than the interest rate
How does low interest rates encourage spending & investment
As it makes it cheaper to take out loans
What is the main source of income for commercial banks
Interest
How do banks create credit
By using deposited funds as loans
How are some loans secured
Through an asset
E.g. house
What forms could loans be in
Cash credit, on demand or only for the short term
What are cash credit loans based on
Bonds & approved securities
Why do banks enter agreements with customers
So money can be withdrawn several times a year
What are loans on demand
When the entire loans is paid into the account of the borrower
- therefore, the loan is charged with interest immediately
What do short term loans tend to be
Personal or for working capital & are usually against a security
What does the central bank control
The currency, money supply & interest rates
In the uk, what is the monetary policy committee (MPC)
Alters interest rates to control the supply of money
How many members are there in the MPC
9
What are interest used to help with
Meet the governments target of price stability
What does interest rates alter
The cost of borrowing & reward for saving
Controlling the base rate would also control?
Interest rates across the economy
What does collateral mean
Secured loan
E.g. mortgage
