C5 - UK Financial System & Liquidity Flashcards
What is liquidity
The availability of cash or assets to finance short term debts as they fall due
What doing it mean to be insolvent?
When a company can no longer pay debts as they fall due
What does liquidity management involve?
- management of cash inflows and outflows
- arrangement of finance at the best terms obtainable
- appropriate investment of any cash
What is a treasury department?
Someone who manages the money and financial risks of the company.
Two types of laws that have an impact on borrowing/investing?
1) bribery act
2) money laundering act
4 offences connected to bribery
1) offering, promising or giving of a bribe
2) requesting, agreeing to receive or accepting a bribe
3) bribery of a foreign public official
4) failing to prevent bribery
What is money laundering?
Exchanging money or assets that were obtained criminally for money or assets that are clean and don’t have obvious links to any criminal activity.
What is Financial intermediaries
A bank that holds funds from customers in order to make loans to borrowers
Types of banks:
1) retail banks - NatWest, Lloyds and Halifax
2) merchant/investment banks - deals with major companies
What is the Bank of England (BoE)
The UKs central bank carrying out the following functions:
- a banker to the government
- a banker to other banks
- responsibility for note printing, gold and foreign currency
- helps to influence interest rates in the economy
What is the Interbank Market?
Banks and other large companies lending to each other on an unsecured basis over short periods. E.g. overnight, one month or six months.
What are secured money markets?
Banks and other large companies that issue a variety of IOU certificates or securities issues by government or commercial banks.
When a certificate is sold, does the new buyer receive the face value or the mature value which includes interest?
Face value at all times.
What are treasury bills?
91 day certificate issued to provide short term government funding
What are gilts?
Certificates issued for long term financing in return for money borrowed by the government.
What are certificates of deposits?
Short term certificates issued by the banks for deposits received.
What is a bill of exchange?
A document which sets out the amount and payment date of a debt. This can be sold at a discount before the due date so that the person who recently purchased it will receive the money on the due date.
Assets and liabilities of a bank?
Assets:
Loans
Investments
Liabilities:
Customer deposits
Capital and reserves
What is the Monetary Policy?
This involves the control of the money supply in the economy which in turn affects the rate of inflation
What is fiscal policy?
How much the government spend and how it applies taxes to help control the economy.
What is the purpose on the Monetary Policy?
Maintain price stability
Stability of employment rates
Achieved economic growth measured by Gross Domestic Product
Avoid recessions
What is Gross Domestic Product?
A market value of goods and services produced by a country over a given period of time
What is a recession in business terms?
A recession is the situation in which GDP has fallen over two successive quarters
If Gross Domestic Product is high does this mean the Monetary Policy is working or no?
Yes.
What is a bank rate?
An interest rate which is set by the Monetary Control Committee and is he rate which sets the pattern for commercial bank lending rates
How what a treasury departments job entail?
Making sure a company has sufficient capital
Deciding how and where to borrow or invest money whilst managing the risks
