Chapter 8

Question 1

Money

Answer 1

Medium of exchange or medium of payment, but also a store of value

Question 2

Narrow money

Answer 2

The part of the stock of money made of cash and liquid bank and building society deposits

Question 3

Broad money

Answer 3

Part of the stock of money made of cash, other liquid assets such as bank and building society deposits, but also some less liquid assets

Question 4

Liquidity

Answer 4

Measures the ease with which an asset can be converted into cash with a loss of value (most liquid of all assets)

Question 5

Equity

Answer 5

Wealth, shares are known as equities
ALSO
Fairness or justness

Question 6

Debt

Answer 6

Money people owe

Question 7

Bonds

Answer 7

Financial securities sold by companies or by governments which are a form of long-term borrowing.

Question 8

Financial markets

Answer 8

Markets in which financial assets or securities are traded

Question 9

Money markets

Answer 9

Provide a means for lenders and borrowers to satisfy thier shrt-term financial needs.
Assets that are bought and sold on money markets are short term, with maturities ranging from a day to a year, and are normally easily convertible into cash

Question 10

Capital markets

Answer 10

Where securities such as shares and bonds are issued to raise medium- to long term financing, and where shares and bonds are then traded on the ‘second-hand’ part of the market

Question 11

Foreign exchange markets

Answer 11

Global, decentralised markets for the trading of currencies.

Question 12

Shares

Answer 12

Undated financial assets, sold initially by a company to raise financial capital. Shares sold by private companies are not marketsble

Question 13

Corporate bonds

Answer 13

Debt security issued by a company and sold as new issues to people who lend long-term to the comspny

Question 14

Government bonds

Answer 14

Debt security, in the UK known as gild-edged securities of gilts, issued by s government and sold as new issues to people who lend long-term tot he government

Question 15

Coupon

Answer 15

Guaranteed fixed annual interest payment, often divided into two 6-month payments, paid by the issuer of a bond to the owner fo the bond

Question 16

Maturity date

Answer 16

Date on which the issuer of a dated security, such as gilt-edged security or a Treasury bill, pays the face value if the security to the security’s owner

Question 17

Central bank

Answer 17

National bank that provides financial and banking services for its country’s government and banking system, as well as implementing the government’s monetary policy and issuing currency

Question 18

Commercial bank

Answer 18

A financial institution which aims to make profits by selling banking services to its customers

Question 19

Investment banking

Answer 19

Bank which does not generally accept deposits from ordinary members of the general public

Question 20

Systematic risk

Answer 20

Refers to the risk of a breakdown of the entire financial system, caused by inter-linkages within the financial system, rather than simply the failure of an individual bank or financial institution within the system

Question 21

Credit

Answer 21

When a bank makes z loan it creates credit. The loan results in the creation of an advance, which is an asset on the bank’s balance sheet, and a deposit, which is a liability of the bank

Question 22

Profitability

Answer 22

State or condition of yielding a financial profit or gain

Question 23

Security

Answer 23

Secured loans, such as mortgage loans secures against the value of property, are less risky for banks than unsecured loans

Question 24

Bank rate

Answer 24

The interest rate set by the Bank of England which it uses as a benchmark for setting the interest rates that it charges when lending to commercial banks and other financial institutions

Question 25

Quantitative easing (QE)

Answer 25

Unconventional form of monetary policy through which a central bank, such as the Bank of England, creates new money electronically which it then uses to buy financial assets, sich as government bonds, on the country’s financial market

Question 26

Forward guidance

Answer 26

Attempts to send signals to financial markets, businesses and individuals, about the BofE’s interest rate policy in the future, so that economic agents are not surprised by a sudden and unexpected change in policy.

Question 27

Funding for Lending Scheme

Answer 27

Incentives banks and building societies to boost their lending to the UK real economy.

Question 28

Financial Policy Committee

Answer 28

Part of BofE charged with the primary objective of identifying and monitoring and taking action to remove or reduce systematic risks with a view to protecting and enhancing the resilience of the UK financial system

Question 29

Prudential Regulation Authority

Answer 29

Part of BofE responsible for the micro prudential regulation and supervision of banks etc.

Question 30

Financial Conduct Authority

Answer 30

Primarily responsible for macro prudential regulation, the FCA aims to make sure that financial markets work well so that consumers get a fair deal, by ensuring that the financial industry is run with integrity and that consumers can trust that firms have their best interests

Question 31

Liquidity ration

Answer 31

Ration of a bank’s cash and other liquid assets to its deposits

Question 32

Capital ratio

Answer 32

Amount of capital on a bank’s balance sheet as a proportion of its loans