Money & Banking Terms

Question 1

Legal Tender

Answer 1

The money that must be accepted if offered as payment for a purchase or settlement of a debt.

Question 2

Monetary Policy

Answer 2

Those actions by the ECB that influence money supply, interest rates and the availability of credit.

Question 3

Commercial Banks

Answer 3

Institutions that provide deposit and lending services to personal consumers and businesses.

Question 4

Primary Liquidity Ratio

Answer 4

The amount of money with respect to short-term deposits that the Central Bank requires commercial banks to keep in cash form.

Question 5

Capital Adequacy Ratio

Answer 5

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 apart from cash as security e.g. common shares.

Question 6

Nominal Interest Rate

Answer 6

The interest rate unadjusted for inflation

Question 7

Real Rate of Interest

Answer 7

The nominal rate of interest minus the rate of inflation.

Question 8

Laissez-faire principles

Answer 8

Minimum state intervention, deregulation of markets and privatisation of state bodies.

Question 9

Commercial (retail) bank

Answer 9

Institutions that provide deposit/lending services to personal consumers/businesses.

Question 10

Quantitive Easing

Answer 10

–

Question 11

Nationalisation

Answer 11

–