money, banks (L13,L14)

Question 1

liquidity

Answer 1

easy to convert into purchasing power, money being the most liquid form of wealth

Question 2

official measure of UK money supply

Answer 2

M4=C+D
c (currency held by the public) d(deposits of customers in UK banks
the more loans taken, the more money (M4)

Question 3

money market consists of

Answer 3

demand for money by households
supply of money by BoE
money supply is vertical

Question 4

how do banks make profit

Answer 4

interest on loans, pay interest on deposits
profit= rL-rD , must earn more from loans that they pay for deposits

Question 5

deposits

Answer 5

short term liabilities payable on demand

Question 6

loans

Answer 6

long term assets paid over several years

Question 7

illiquid assets

Answer 7

like loans that can’t be used to meet demands for cash

Question 8

liquid assets the bankhas

Answer 8

cash
bonds
reserves

Question 9

risks of banking

Answer 9

bank runs
insolvency

Question 10

leverage ratio

Answer 10

total assets/net worth more loans=more assets=more leverage
net worth needed to absorb losses on loans
to survive banks need sufficient liquid assets and capital