O2E Financial sector Flashcards
State 4 functions of money
- Medium of exchange
- store of value
- unit of account
- standard of deferred payment
List 4 desirable characteristics of money
- durability
- valuable
- divisible
- portable
List the main roles/purposes of the financial sector
- facilitate saving
- lend to businesses and individuals
- provide forward markets for currency
- facilitate exchange for goods and services
- provide market for equities
State 4 functions of a Central Bank
- Controlling the money supply
- implementing monetary policy
- managing the currency
- lender of last resort
State the 3 main bodies that regulate the financial sector
- FPC
- PRA
- FCA
Functions and purpose of FPC
identifies, monitors and protects against systemic risk and advises the government
Functions and purpose of PRA
maintains the stability of banks by specifying ratios and requirements
Functions and purpose of FCA
Protects customers and increases confidence in financial institutes by promoting competition so consumers get better deals
3 potential problems with regulating financial sector
- Moral hazard
- asymmetric information
- market rigging
moral hazard
person or business is more willing to take risks to benefit themselves because negative costs are felt by someone else
Asymmetric information
in a transaction one party has less information than the other
Market rigging
the manipulating of financial markets for personal gain
outline the difference between IMF and world bank
- IMF aims to ensure macro stability globally by providing emergency funds to any country in crisis
- world bank offers grants to developing countries for long term aid
difference between narrow and broad money
narrow money is notes and coins whereas broad money includes notes coins but also saving accounts, deposits and gilts
