Money and Banking Flashcards

Question

what is the capital adequacy ratio?

Answer 1

the percentage of a bank's capital to its risk-weighted assets. Tier 1 capital is comprised of profits (i.e. retained earnings) and certain types of shares. effectively, this is the amount of back-up a bank has apartnfrom cash as security e.g. common shares

Answer 2

refers to the need for a bank to make as much profit as possible from its assets to satisfy its shareholders. the more profitable the asset is, the less liquid it is.

Answer 3

refers to a banks need to have liquid assets in order to meet the demand for cash by its costumers. the more liquid the asset is , the less profitable it is.

Answer 4

profitability and liquidity banks must satisfy their customers needs for cash i.e. they must have enough liquidity but cash doesn't earn interest and banks also wish to be profitable they tend to compromise in having sufficient liquidity and yet earning profits.

Answer 5

- BANKING RATIOS ( primary liquidity ratio and capital adequacy ratio) - EUROPEAN CENTRAL BANK GUIDELINES - LIMITED OPPORTUNITIES for credit extension via a limited supply of creditworthy customers - an economic recession would lower confidence, employment and the number of successful businesses. as a result, loans may not be demanded in a recessionary period to the same extent as in a period of growth.

Answer 6

i.e. use of credit cards, etc... + credit is easier to use when you don't have to apply for a loan month-on-month, but instead just hand over a card and tap in a PIN. as a result, plastic card use enables banks to create more credit. + since credit cards are so popular today, banks need to take into account the lending provided by these plastic cards when calculating their bank rates.

Answer 7

DECREASED DEMAND FOR CARS less consumers can purchase a car. fall in demand for new and for second-hand cars INCREASED REDUNDANCIES less demand for cars - number of people employed in the motor industry and the sale of cars could decline BUSINESS CLOSURES / CONSOLIDATIONS many small car dealerships may not survive and would be forced to close. inability to get credit results in cash flow problems, inability to pay suppliers and possible closure of the firms

Answer 8

INFLATION WOULD DECREASE the supply of money / credit will fall, causing a decrease in the amount that individuals have to spend. this fall would lead to a reduction in demand-pull-inflation DEFLATION the price of goods and services may fall due to falling demand and cost of production

Answer 9

IMPORTS INCREASE less demand for goods and services - automatic fall in demand for imports EXPORTS DECREASE businesses would not be able to avail of credit in order to expand their businesses. this fall in investment may lead to an decrease in exports

Answer 10

the interest rate unadjusted for inflation e.g. interest rate 3%, you deposit 100 euro, you'll have 103 euro a year later

Answer 11

the nominal interest rate minus the rate of inflation? e.g. interest rate 3% , you deposit 100 euro , inflation rate 2% , now your return is only 1% more worth (not 3% )

Answer 12

if the inflation rate is bigger then the interest rate, your money might loose value.

Answer 13

SAVINGS ENCOURAGED higher rates of return, it becomes more attractive to save more and spend less COST OF SERVICING NATIONAL DEPT higher interest rates, cost of repaying the national debt rises COST OF PRODUCTION / IMPROVED COMPETITIVENESS rising cost of capital - increased cost may be passed on, resulting in higher prices (inflation), lower employment and/or reduced margins INCENTIVE TO INVEST fewer companies will want to invest - disadvantage ECONOMIC GROWTH IS DAMPENED lower investment and less disposable income in the pockets of mortgagees, economic growth is hampered REVENUE RECEIVED FORM DIRT higher savings, government may receive more revenue from DIRT.

Answer 14

SAVINGS DISCOURAGED lower rates of return, less attractive to save, more spending INCREASED DEMAND FOR HOUSES lower cost of borrowing, increased demand for properties COST OF SERVICING THE NATIONAL DEPT cost of repaying the national dept falls COST OF PRODUCTION/ IMPROVED COMPETITIVENESS lower cost of capital, reduction in cost may be passed on. or increases the margin of the business. employment may be increaed. INCENTIVE TO INVEST higher marginal efficiency of capital - higher profits. investment is encouraged, as it becomes cheaper for businesses to borrow ECONOMIC GROWTH ENCOURAGED possibly higher investment, increased future economic growth REVENUE RECEIVED FROM DIRT less savings, government may receive less revenue from DIRT (but greater from gains tax on investment profits)

Answer 15

national asset management agency

Answer 16

1. banks were prevented from insolvency or very serious problems as Nama paid them for large commercial property loans 2. artificial floor was put under the falling property market 3. banks received fresh capital so that they could lend to businesses . they could stay open and generate profits for the banks, increasing borrowers sustainability and their own profitability. 4. no resources taken away from the government to spend on public services.

Answer 17

... a market, where banks lent to one another. e.g. if one Irish bank needs short-term funds, it could borrow from another Irish bank or a foreign bank over night.

Money and Banking Flashcards

Chapter 18