Monetary Policy Flashcards
What is a “Policy Rate”?
An interest rate that a central bank sets and announces publicly; normally the rate at which it is willing to lend money to the commercial banks.
What is/was the “Gold Standard”?
With respect to a currency, if a currency is on the gold standard, a given amount can be covered into a prespecified amount of gold.
What is “Legal Tender”?
Something that must be accepted when offered in exchange for goods and services.
What is “Fiat Money”?
Money that is not convertible into any other commodity.
What is the “Lender of Last Resort”?
An entity willing to lend money when no other entity is ready to do so.
What is a “Payments System”?
The system for the transfer of money.
What are “Foreign Currency Reserves”?
Holding by the central bank of non-domestic currency deposits and non-domestic bonds.
What is “Price Stability”?
In economics, refers to an inflation rate that is low on average and not subject to wide fluctuation.
What are “Open Market Operations”?
The purchase or sale of bonds by the national central bank to implement monetary policy.
The bonds traded are usually sovereign bonds issued by the national government.
What is the “Official Interest Rate”?
An interest rate that a central bank sets and announces publicly; normally the rate at which it is willing to lend money to the commercial banks.
Also called the “official policy rate” or “policy rate”.
What are “Base Rates”?
The reference rate on which a bank bases lending rates to all other customers.
What is a “Two-week Repo Rate”?
The interest rate on a two-week repurchase agreement; may be used as a policy rate by the central bank.
What is a “Refinancing Rate”?
A type of central bank policy rate.
What is the “Reserve Requirement”?
The requirement for banks to hold reserves in proportion to the size of deposits.
What is the “Monetary Transmission Mechanism”?
The process whereby a central bank’s interest rate gets transmitted through the economy and ultimately affects the rate increase of prices.
