Chapter 5 - Banks (1/3) Flashcards
What are diff types of banks
- Central Banks
-Commercial Banks (retail, wholesale, investment)
What is a central bank
It is responsible for the monetary policy of a country (ies)
What is a central banks MAIN objective
To maintain stability of the national currency and money supply
What are other objectives of a central bank
1) Managing foreign currency reserves
2) Acting as a “bailout lender during financial crisis
3) Controlling subsidised interest rates
4) Supervisory powers - prevent fraud and recklessness
Foreign, bailout, interest, supervisor
Who owns central banks
Typical = state owned, minimally autonomous, gov intervention
Independent central bank: policies to prevent political interferance
What is a commercial bank
any bank that is involved in making commercial transactions with customers
What is a Retail bank?
banking services to individuals and small businesses
What is a wholesale bank
banking services to larger businesses
What is an investment bank?
an intermediary in complex corporate transations
What is a clearing bank?
Clears checks and finalises financial decisions
What services do commercial banks provide?
-Safe place to store wealth
-Act as a financial intermediary
-Lending via overdrafts and loans
-FX dealings
What is credit creation?
Banks do not have to keep cash reserves that match the value of all customer deposits
What is a cash/reserve ratio?
If you give 100 to a bank and it gives out 75% to others
you have a 25% cash or reserve ratio
How do you calculate increase in deposits?
Initial deposit/cash ratio
i/e 100/0.25
1/CR = credit multiplier
What are the functions of money
Store of value
Unit of account
Medium of exchange
Standard of deferred payment
SUMS
