2.4 Financial markets and monetary policy Flashcards
money supply
value of the stock of money
narrow money
notes/coins and other liquid balances
broad money
narrow money + non liquid balances
money market
short term finance provided for individuals, firms and governments
capital market
medium-long term finance provided through bonds and equity
foreign exchange market
transactions in foreign currencies for immediate and future use
treasury bills
short term debt borrowed by governments
equity
shares in companies which pay dividends do shareholders
bonds
debt issued by firms and governments that pays a fixed rate of interest and matures at a set date
commercial bank
bank that accepts deposits for the public and lends to those wishing to borrow
central bank
bank responsible for a currency and managing monetary policy
monetary policy
managing the price of money and money supply
bank rate
interest rate set by the government which influences all other interest rates in an economy
transition mechanism
process of how a change in policy affects macroeconomic indicators and variables
quantitive easing
increasing liquid funds available for banks so they are more willing to lend to businesses
forward guidance
announcing the conditions for when policy is likely to change in the future
moral hazard
when an institution takes too much risk due to not bearing costs of risky behaviour
liquidity ratios
limiting how much a bank can lend to a % of its deposits
capital ratios
limiting how much a bank can lend to a % of its capital issued
systemic risk
risks that will affect the whole banking system
