Financial Markets And Monetary Policy Deffinitions Flashcards
BoE
Bank of England: 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.
Contradictionary 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.
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).
Expansionary monetary policy
Monetary policy implemented to increase aggregate demand.
Financial sectors
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.
MPC
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.
QE
Quantitative easing (QE): By buying assets (generally government bonds) using newly created electronic money.
Rate of interest
The reward for saving and the cost of borrowing
Repo rate
Rate at which the central bank can lend money to commercial banks.
Reserve currency
Foreign currency held in a country’s official reserves due to its value as a medium of exchange.
Reverse repo rate
Rate at which the central bank can borrow money from commercial banks.
Shadow banking systems
Unregulated firms that provide credit.
Shares
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.
