Financial Markets and Monetary Policy Flashcards
Bank of England
The central bank in the UK economy, which is in control of monetary policy.
Bond
Debt; represents money that must be paid back over a period of time
Broad money
Money held in banks and building societies but that is not immediately accessible
Central bank
Controls the banking system and manages the government’s monetary policies.
Contractionary monetary policy
Monetary policy implemented to decrease aggregate demand.
Default
The failure or inability to meet the legal minimum requirements of a loan
Dividend
Portion of firms’ profits paid to shareholders
Expansionary monetary policy
Monetary policy implemented to increase aggregate demand.
Equation of exchange
The stock of money in an economy multiplied by the velocity of circulation equals the price level multiplied by real output (MV=PQ).
Financial sector
Firms that provide financial services
Hot money
Highly volatile money derived from investors storing money in different institutions, looking for the highest rate of return
Interest
Money paid to a lender by a borrower
Monetary Policy Committee (MPC)
Nine economists who meet monthly to set the Bank Rate as well as other monetary instruments.
Monetary policy
Use of interest rates and other monetary instruments to achieve macroeconomic objectives.
Money supply
Stock of money in the economy, comprised of cash and bank deposits.
Narrow money
Physical money and more liquid assets.
Rate of interest
The reward for saving and the cost of borrowing.
Quantitative easing (QE)
By buying assets (generally government bonds) using newly created electronic money.
Reserve currency
Foreign currency held in a country’s official reserves due to its value as a medium of exchange
Repo rate
Rate at which the central bank can lend money to commercial banks.
Reverse repo rate
Rate at which the central bank can borrow money from commercial banks
Shadow banking system
Unregulated firms that provide credit
Share
Equity; represents entitlement to a portion of a firm’s profits via dividends
Systemic risk
When issues within one firm in the financial sector could bring about the collapse of the sector and/or the economy
Transmission mechanism of monetary policy
The process by which alterations to the base rate affect determinants of aggregate demand
