Chapter 2 Flashcards
It is under the control of BSP and is completely discretionary
Monetary Policy
This is used by the government to be able to control inflation and stabilize currency
Monetary Policy
Two ways that the government can influenece the economy
monetary policy
fiscal policy
The BSP will lower interest rates and increase the money supply
recession
The BSP will raise interest rates and decrease the monet supply
Overheated expansion
commonly called as easy money
expansionary
commonly called as tight money
contractionary
a monetary policy setting that intends to increase the level of liquidity or money supply in the economy qnd which could result in a relatively higher inflation path for the economy
expansionary monetary policy
tends to encourage economic activity as more funds are made available for lending by banks
enpansionary
a monetary policy setting that intends to decrease the level of liquidity or money supply in the economy and which could also result in a relatively lower inflation lath for the economy
contractionary
tends to limit economic activity as less funds are made available for lending by banks
contractionary monetary policy
is focused mainly on achieving a low and stable inflation, supportive of the economys growth objective
inflation targeting
to increase or reduce liquidity in the financial system, the BSP uses
open market operations
accepts fixed-term deposits
offers standing facilities
requires vanking institution too hold reserves
are a key component of monetary policy implementation
open market operations
open market operations consists of
repurchase transactions
reverse repurchase transactions
outright transactions
foreign exchange swaps
the BSP buys government securities from a bank with a commitment to sell it back at a specified future date at a predetermined rate
repurchase or repo transaction
the BSP acts as the seller of government securities and the banks payment has a contractionary effect on liquidity
reverse repo
refer to the direct purchase or sale by the BSP of its holdings of government securities from or to banking institutions
outright transactions
refer to transactions involving the actual exchange of two currencies on a specific date at a rate agreed on tge deal date
foreign exchange swaps
consists of fixed-term deposits by banks and by trust entities of banks and non-bank financial institutions with the BSP
Special Deposit Accounts
is a standing credit facility provided by the BSP t help banks meet temporary liquidity needs by refinancing the loans they extend to their clients
Rediscounting
allows a financial institution to borrow money from the BSP using promissory notes and other loan papers of its borrowers as collateral
rediscounting facility
two types of rediscounting facilities
the peso rediscounting facility
the exporters dollar and yen rediscount facility
refer to the perventage of bank deposits and deposit substitute liabilities that banks must keep on hand or in deposits with the BSP and therefore may not lend
reserve requirements