Monetary Authorities and Central Banks Flashcards
To get good asf
The main functions performed by central banks include… (6)
- Monetary Policy
- Issuing currency
- provide banking to the government
- overseeing the operations of the financial system
- facilitating the payments system
- managing financial system liquidity & the governments holding the foreign exchange
The main objectives of monetary policy… (3)
- maintenance of a stable currency (price stability)
- maintenance of full employment
- maintenance of the prosperity & welfare of the people
The three roles the RBA plays
- promoting the efficiency & stability of the payment system
- providing the facilities for the settlement of transactions
- acting in the payments system as the bank of the Australian Government
Three roles of the Bank of England
- Selling/buying interest-bearing securities (with no maturities) to manage the fund’s credit supply
- the lender of last resort
- net settle of payment orders between commercial banks
The RBNZ is responsible for (3)
- monetary policy
- systematic stability
- prudential regulation
What is the remit
it outlines the objective that the MPC must use must use monetary policy to pursue, as set by the minister of finance
Definition of M1
Money as a medium of exchange, also known as narrow money.
Coins + notes + current bank account
The goals of the Federal Reserve Bank are… (4)
- conducts US monetary Policy,
- promotes the stability of the financial system,
- fosters payments & settlement system safety and efficiency,
- community development
The most important power of central banks is….
The ability to control liquidity in the financial system
M3 is…
M1 plus all other banks deposits of the private nonbank sector (saving deposits, money market deposits)
Functions of the eurosystem (3)
- to define and implement the monetary policy of the union
- to hold and manage the official foreign reserves of the member states
- to promote the smooth operation of payment system
Exchange settle funds (ESFs) are in Exchange settle acoounts (ESA) by controlling the ESFs, the RBA is able to control the money supply
IDEK
The reserve bank maintains the ‘cash rate target’ what is the cash rate?
the cash rate is the unsecured overnight interbank lending rate & represents the primary cost of short term loanable funds.
What does the cash rate measure?
the return of most liquid of all financial assets, it directly reflects the available reserves in the banking system
The OCR sets what…
the interest rates on the deposits & loans that registered banks have with the RBNZ .It is the interest rate that underpins all the many interest rates charged for loans for various types
M0 or Monetary base is what…
Money directly created by the reserve bank
what does M0 consist of
physical currency & settlement cash balance (deposits held by commercial banks in their accounts at the central banks)
The amount of money created through bank lending is ultimately determined by…
the supply & demand for bank loans
Key supply factors that can constrain money creation (3)
- Liquidity
- Stable funding
- Capital
Factors affecting the demand of loans (5)
- the borrowing needs of the population
- the overall size of the economy
- the availability of profitable opportunities to invest in economic capital
- Prices of physical assets
- Interest rates
Monetary policy is thought to affect the economy through what three basic expenditure channels
- business investments
- consumer spending
- net exports
Define consumer spending
A decline in interest rates increases the market value of fixed-income securities (eg corporate bonds and mortgages)B
Define business investment
When interest rates are low, firms & retailers are more likely to acquire additional inventory
What is forward guidance
refers to the communication from a central bank about the state of the economy & likely future course of monetary policy
Delphic forward guidance
statements or forecasts about the likely future direction of monetary policy
Odyssean forward guidance
explicit commitments about the path of future policy
Interest rate swaps
where a contract where one stream of future interest payments is exchanged for another. The reserve bank could enter into interest rate swaps to reinforce forward guidance.
Large Scale Asset Purchases (LSAPs)
The reserve bank could purchase domestic government bonds to lower interest rates.
This would contribute to a flattening of the yield curve through the main channels of policy signalling & portfolioling
Term lending
Collateralised long-term loans to banks in order to support monetary policy.
The (RBNZ Funding for Lending) FLP is a monetary policy tool intended to…
lower overall bank funding costs & therefore retail interest rates
ESFs (Exchange Settlement Funds) are what?
Funds held by commercial banks at the central bank to settle interbank transactions.
A contradiction in the money supply should:
Select one:
a.
increase domestic interest rates.
b.
cause the exchange value of the Australian dollar to decrease.
c.
cause Australian exports to increase.
d.
all of the above.
a
True or False, The cash rate is a market-determined rate resulting from the demand and supply of ESF.
True
An increase in the supply of ESF
Select one:
a.
increases the cash rate.
b.
decreases the cash rate.
c.
increases the cash rate target.
d.
decreases the cash rate target.
b
Monetary policies directed toward increased economic activity are likely to ________ the value of the domestic currency in relation to other currencies.
Select one:
a.
increase
b.
decrease
c.
have no effect on
d.
have an ambiguous effect on
b
If the actions of the government (or other factors that the Reserve Bank of Australia does not control) bring the cash rate below the cash rate target,
Select one:
a.
the RBA will buy securities from banks to make the cash rate increase.
b.
the RBA will buy securities from banks to make the cash rate target decrease.
c.
the RBA will sell securities to banks to make the cash rate increase.
d.
the RBA will sell securities to banks to make the cash rate target decrease.
c
RBNZ Main Objectives (3)
- Economic objective
- Financial stability objective
- Central bank objective
- Maintaining price stability over medium term
- Promoting stability of NZ’s financial system
- Acting as NZ’s central bank
