Financial Markets & Monetary Policy Flashcards
What are the 4 functions of money?
1- Medium of exchange
2- Store of value
3- Unit of account
4- Deferred payment
What are the 5 roles of financial markets?
1- Facilitate Savings
2- Lends to businesses & individuals
3- Exchange of goods & services
4- Provide forward markets
5-Provide a market for equities
What are the 3 types of financial markets?
1- Money markets
2- Capital markets
3- Currency markets
Explain the financial markets.
MM: used by governments + firms to borrow + lend short term (<12 months)
CAPM: used by gov + firms to borrow + lend long term (>12 months) borrowing takes place by issuing bonds + shares. last as long as willing
CURM: market where currencies (foreign exchange) traded. volatile.
4 Functions of a Central Bank?
1- Implementation of monetary policy
2- Act as a banker to the government
3- Act as a banker to the banks (lender of last resort)
4- Regulation of banking industry
What are the factors effecting the MPCs decisions?
- Inflation expectations
- Consumer spending forecasts
- Real GDP growth rate
- Exchange rate
- Trade balance
- Consumer + firm confidence
- State of labour market
What are the effects of bank rate (interest) falling?
1- HOUSING MARKET & CONSUMPTION (mortgages, +ve wealth effect, equity withdrawal effect, lower monthly repayments)
2- CONSUMPTION (cheap loans, AD rise, +ve multiplier effects, return on saving fall, opportunity cost consuming fall)
3- GOV SPENDING (cheaper gov borrowing, fiscal deficit less important, boom econ = fiscal d less likely)
4- TRADE & EXCHANGE RATES (hot money, increase s £, fall d £, depreciate, demand M down X up, value X up M down, trade deficit down AD up)
5- BUSINESS INVESTMENT (loans cheaper, more projects, GDP up)
What are the bodies responsible for regulation the UK financial system?
1- Prudential Regulation Authority (PDA)
2- Financial Policy Committee (FPC)
3- Financial Conduct Authority (FCA)
