5.3 - financial regulation

Question 1

Role of the CB

Answer 1

Lender for last resort banks
Banker to government
Implements monetary policy
Regulates financial sector
Issues notes / coins
Manage er through gold + foreign currency reserves

Question 2

Banker to gov

Answer 2

Handles:
- Tax rev
- Gov spending / borrowing / lending

Question 3

Implement monetary policy

Answer 3

Primary objectives: maintain price stability through inflation targets + interest rates
Secondary objectives: unemployment / econ growth

Question 4

Regulation

Answer 4

Maintains financial / monetary stability
Minimises financial market failure

Question 5

Financial Policy Committee

Answer 5

Identifies, monitors, protects financial system against risks
Advises gov on managing financial markets
Whole financial system

Question 6

Prudential Regulation Authority

Answer 6

Maintains banking stability / promotes financial comp
Works at individual level

Question 7

Liquidity ratios

Answer 7

Measure of company’s liquid assets against ST liabilities
More liquid = more likelihood of repayment

Question 8

Capital ratios

Answer 8

Difference between banks assets + liabilities
Low capital = exposed if assets fail

Question 9

Strengths of financial regulation

Answer 9

Offers guidance on potential future financial crises
Minimised risk of future financial crises
Prevents excessive bank risks

Question 10

Weaknesses of FR

Answer 10

Increased costs for banks - less int comp
Precise level of reg = difficult to judge