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Macroeconomics > Booklet 4 > Flashcards

Booklet 4 Flashcards

1
Q

What is a thing that someone owns which has a market value and is capable of generating an income.

A

An asset

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2
Q

What is trading one good or service directly for another?

A

To barter

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3
Q

What is the term given to everything in narrow money but also assets that serve as stores of value but are too illiquid to serve as a medium of exchange?

A

Broad Money

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4
Q

What is the name given to a financial market which provides long-term lending, with assets such as government bonds maturing in a year or more. Made up of primary and secondary markets, depending on whether these assets are issued new or re-sold?

A

Capital Market

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5
Q

What is the name given to the proportion of a bank’s funding that has come in the form of equity (i.e. sale of shares and reserves [retained profit]), as opposed to deposits etc.`?

A

Capital Ratio

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6
Q

What is a bank such as the Bank of England that acts as a national bank and provides services to government and the banking system and controls monetary policy?

A

Central Bank

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7
Q

What is a financial institution which aims to make a profit by selling banking services to it’s customers?

A

A commercial bank

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8
Q

What is the name given to bills like Treasury bills, but to raise financial capital for firms?

A

Commercial Bills

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9
Q

What is the name given to the use of a commodity with intrinsic value to facilitate trade (e.g. precious metals)?

A

Commodity Money

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10
Q

What is a long-term source of finance for firms, where investors buy a bond for a sum of money which is returned to them when the bond matures, in addition to an annual coupon?

A

A Corporate Bond

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11
Q

What is the name given to the annual payment (often paid in two instalments) to owners of government bonds expressed either as a fixed amount or as a percentage of the face value?

A

A coupon

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12
Q

What is the money put into a business by it’s shareholders (i.e. share capital and retained profit)?

A

Equity

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13
Q

What is the name of a macroprudential regulator whose primary function is to maintain the stability of the financial system overall, with a secondary objective in supporting the government’s economic policy?

A

Financial Conduct Authority

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14
Q

What are foreign exchange markets?

A

The trade in foreign currrencies.

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15
Q

What is the name of a form of unconventional monetary whereby the central bank gives signals to financial markets over the future direction of monetary policy?

A

Forward Guidance

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16
Q

What is the name for a system of banking where only a fraction of deposits are held in cash available for withdrawal (while the rest is advanced to borrowers)?

A

Fractional Reserve Banking

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17
Q

What is the name of a scheme launched by the Bank of England in July 2012, designed to encourage banks and building societies to expand lending to households and SMEs by offering them cheap credit?

A

Funding for Lending Scheme

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18
Q

What is the name of a long-term source of finance for governments, used to finance a budget deficit, where investors buy a bond for a sum of money which is returned to them when the bond matures, in addition to an annual coupon?

A

Government bond/Gilt

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19
Q

What is a bank which generally doesn’t accept deposits from the public but deals directly in financial markets for their own account and offers financial advice and consultancy, help with stock market flotations ,M&A etc. called?

A

An Investment Bank

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20
Q

What is the name of something that is owed to someone?

A

A liability

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21
Q

What is liquidity?

A

The ease with which an asset can be converted into cash without loss of value.

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22
Q

What is the ratio between a bank’s assets and its expected outflows.

A

Liquidity ratio

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23
Q

What does macroprudential mean?

A

Relating to the overall stability of the financial system.

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24
Q

What is a financial market which provides short-term lending, with assets maturing in less than a year (such as Treasury bills)?

A

Money market

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25
Q

What is the name given to the maximum multiple of it’s deposits that commercial banks can create by advancing deposits to borrowers?

A

Money multiplier

26
Q

What is the name given to a scenario where a firm (or other economic agent) takes excessive risk in the pursuit of profit, knowing that someone else will bear a significant proportion of the cost?

A

Moral Hazard

27
Q

What is the name given to money that can be used as a medium of exchange; cash and liquid deposits in banks/building societies?

A

Narrow money

28
Q

What term means the extent to which an enterprise earns profit (usually measured by comparing profit to turnover or [financial] capital employed)?

A

Profitability

29
Q

What is the name of the microprudential regulator that regulates and supervises individual banks, building societies, credit unions, insurers and major investment firms?

A

Prudential Regulation Authority

30
Q

What is the name of a form of unconventional monetary policy characterised by large-scale purchase of securities by central banks using newly-created money?

A

Quantitataive Easing

31
Q

What is Quantitative tightening?

A

A term sometimes used to describe the process of reversing or ‘unwinding’ quantitative easing.

32
Q

What kind of money is backed by something such as gold but represented by something else (e.g. early ‘promissory’ banknotes)?

A

Representative Money

33
Q

What is the proportion of deposits that a commercial bank is required to retain in a system of fractional reserve banking called?

A

Reserve Requirement

34
Q

What term describes the extent to which a loan is backed by collateral (such as property) which can be seized in the event of a default?

A

Security

35
Q

What is a financial asset that confers part ownership of an incorporated firm, the holder of which will receive a share of any profits distributed, known as dividend.

A

Shares

36
Q

What is money deposited with a financial institution that can be withdrawn at any time with no penalty. An example would be accessing the funds in a current account via an A.T.M called?

A

Sight deposit

37
Q

What is a simulation designed to assess the resilience of a financial institution (such as a bank) to an adverse scenario (such as a severe recession) called?

A

A stress test

38
Q

What is a risk posed to the whole financial system because of the connection between institutions and markets rather than from the failure of a single institution called?

A

Systemic risk

39
Q

What is money deposited with a financial institution that can only be withdrawn after a certain notice period or from which withdrawals incur a penalty, for example some savings accounts called?

A

Time deposit

40
Q

What money that has no link to anything of any intrinsic value, such as modern bank notes called?

A

Token money

41
Q

What are short-dated loans raised either by the government with no interest on them as such - they are sold at discount and redeemed at parity (i.e. sold for less than their face value) called?

A

Treasury bills

42
Q

What is the return on an asset (such as a bond or share), usually the annual return expressed as a percentage of it’s current market price called?

A

Yield

43
Q

What are the functions of money?

A

A medium of exchange or means of payment.
A store of value.
A unit of account of measure of value.
A standard of deferred payment.

44
Q

What are the characteristics of money?

A

Difficult to forge.
Limited in quantity.
Portable.
Durable.
Divisible.
Acceptable to all.

45
Q

What is a primary market?

A

They are for new issues (i.e. an IDO from a PLC) or newly issued government bonds.

46
Q

What is a secondary market?

A

They are where securities are re-sold second-hand, for example the London Stock Exchange.

47
Q

What is the key characteristic of a Spot Market?

A

It is immediate.

48
Q

What is the key characteristic of a forward market?

A

It is an agreement for some specified time in the future.

49
Q

What are bills?

A

Short-dated loans raised either by the government (treasury) or firms (commercial). There is no interest on them as such, they are sold at discount and redeemed at parity (i.e. sold for less than their face value).

50
Q

What are bonds?

A

Can be either corporate (firms) or a government bond (also called gilt). These are a form of long-term borrowing and come with a guaranteed amount of annual interest called a coupon, often paid in two instalments, 6 months apart.

51
Q

What is a “face value”?

A

The price a bond is initially sold for and will be bought for. The second-hand price depends on the market.

52
Q

What are the three objectives of a central bank?

A

Profitability
Liquidity
Security

53
Q

What is the formula for the money multiplier?

A

1/Reserve Requirement

54
Q

What are the functions of a central bank?

A

To help the government maintain macroeconomic stability
To bring about financial stability in the monetary system
To act as a lender of last resort
Controlling the note issue
Acting as the banker’s bank
Acting as the government’s bank (reduced in the UK by D.M.O)
International Obligations

55
Q

How long does the Bank of England estimate it takes for a change in bank rate to have it’s effect?

A

2 years

56
Q

What is the size of the effect of a change in bank rate?

A

1 percentage point change in interest rates affect output by 0.2%-0.35% after a year and inflation by 0.2-0.4 pp after two years.

57
Q

What are the nine factors influencing Base Rate decisions?

A

Asset Prices
Business Confidence
Inflation
Consumer Confidence
Trends in FX Markets
Labor Markets
International Data
GDP Growth and Spare Capacity
Bank and lending consumer credit figures

58
Q

What are the five ways that central banks can influence the growth of the money supply?

A

Interest Rates
QE
Open Market Operations
Set Reserve Requirement
Volume of Cash Produces

59
Q

What is Irving Fisher’s Equation of Exchange?

A

MV≡PQ

60
Q

What is meant by a ‘run on the bank’?

A

A scenario where an unusually large number of people wish to withdraw their deposits, usually in response to some kind of panic.

61
Q

What are the eight reasons that banks fail?

A

Low liquidity ratio
Run on the bank
“Borrowing short-term and lending long-term”
Actions of regulator
Rogue Employees
Recklessness
Governments letting them
Low capital ratio

Macroeconomics (6 decks)

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