Chapter 5 Flashcards
What are the main two categories of Banks?
1) Central Bank
2) Commercial Banks
What is a central bank? What is its primary responsibility?
A central bank is an entity responsible for the monetary policy of its country or of a group of member states.
Its primary responsibility is to maintain the stability of the national currency and money supply.
What are the duties of a central bank?
-Controlling subsidised-loan interest rates
-Acting as a bailout lender of last resort to the banking sector during times of financial crisis
(private banks are often integral to the national financial system)
3) Potential supervisory powers, to ensure that banks and other financial institutions do not behave recklessly or fraudulently
4) Managing foreign currency reserves
Who owns central banks?
The central banks of most countries are state owned and hence have a minimal degree of autonomy. This allows for the possibility of government intervening in monetary policy.
What is an independent commercial bank?
A central bank that operates under rules designed to prevent political interference
e.g. Reserve Bank of Australia, European Central Bank, Bank of Canada
What is a commercial bank?
‘Commericial bank’ is a generic term used to describe any bank that is involved in making commercial transactions with customers.
What are four common types of commerical banks?
-Clearing Banks
-Retail Banks
-Wholesale Banks
-Investment banks/Merchant Banks
Due to merger and acquisition activity over the years, most large banking groups offer all four of the above services.
All clearing banks are typically involved in both retail and wholesale transactions
What is a weakening of a curency?
each £ would by more currency than it currently can
What is a strengthening of a currency?
each £ would buy less currency than it currently can
