Financial Markets And Monetary Policy Deffinitions

Question 1

BoE

Answer 1

Bank of England: ​Central bank in the UK economy, which is in control of monetary policy.

Question 2

Bond

Answer 2

Debt; represents money that must be paid back over a period of time.

Question 3

Broad money

Answer 3

Money held in banks and building societies but that is not immediately accessible.

Question 4

Central bank

Answer 4

Controls the banking system and manages the government’s monetary policies.

Question 5

Contradictionary monetary policy

Answer 5

Monetary policy implemented to decrease aggregate demand.

Question 6

Default

Answer 6

The failure or inability to meet the legal minimum requirements of a loan.

Question 7

Dividend

Answer 7

​Portion of firms’ profits paid to shareholders.

Question 8

Equation of exchange

Answer 8

​The stock of money in an economy multiplied by the velocity of circulation equals the price level multiplied by real output (MV=PQ).

Question 9

Expansionary monetary policy

Answer 9

​Monetary policy implemented to increase aggregate demand.

Question 10

Financial sectors

Answer 10

Firms that provide financial services.

Question 11

Hot money

Answer 11

Highly volatile money derived from investors storing money in different
institutions, looking for the highest rate of return.

Question 12

Interest

Answer 12

​Money paid to a lender by a borrower.

Question 13

MPC

Answer 13

Monetary Policy Committee (MPC): ​Nine economists who meet monthly to set the Bank Rate as well as other monetary instruments.

Question 14

Monetary policy

Answer 14

Use of interest rates and other monetary instruments to achieve macroeconomic objectives.

Question 15

Money supply

Answer 15

​Stock of money in the economy, comprised of cash and bank deposits.

Question 16

Narrow money

Answer 16

​Physical money and more liquid assets.

Question 17

QE

Answer 17

Quantitative easing (QE): ​By buying assets (generally government bonds) using newly created electronic money.

Question 18

Rate of interest

Answer 18

The reward for saving and the cost of borrowing

Question 19

Repo rate

Answer 19

​Rate at which the central bank can lend money to commercial banks.

Question 20

Reserve currency

Answer 20

​Foreign currency held in a country’s official reserves due to its value as a medium of exchange.

Question 21

Reverse repo rate

Answer 21

Rate at which the central bank can borrow money from commercial banks.

Question 22

Shadow banking systems

Answer 22

​Unregulated firms that provide credit.

Question 23

Shares

Answer 23

Equity; represents entitlement to a portion of a firm’s profits via dividends.

Question 24

Systemic risk

Answer 24

When issues within one firm in the financial sector could bring about the collapse of the sector and/or the economy

Question 25

Transmission mechanism of monetary policy

Answer 25

The process by which alterations to the base rate affect determinants of aggregate demand.