Summary

Question 1

Summary

Answer 1

1. Structure of Financial Markets and Financial Assets
2. Commercial Banks and Investment Banks
3. Monetary Policy and Central Banks
4. Regulation of the Financial System

Question 2

1. Structure of Financial Markets and Financial Assets

Answer 2

1. Functions of Money
2. Definition of Money Supply (Distinction Between Broad and Narrow Money)
3. Money Market, Capital Market and Foreign Exchange Market
4. Role of Financial Market in the Wider Economy
5. Debt and Equity
6. Inverse Relationship between Market Interest Rates and Bond Prices
7. Purpose of Bonds
8. Purpose of Shares
9. Purpose of Borrowing

Question 3

2. Commercial Banks and Investment Banks

Answer 3

1. Difference Between a Commercial Bank and an Investment Bank
2. Main Functions of a Commercial Banks
3. Structure of a Commercial Bank’s Balance Sheet
4. The Objectives of a Commercial Bank
5. Potential Conflicts Between These Objectives

Question 4

3. Monetary Policy and Central Banks

Answer 4

1. Functions of a central bank
2. Implementation of Monetary Policy
3. Monetary Policy Instruments
4. Factors Considered by the MPC
5. How Changes in the Exchange Rate Affect Macroeconomic Objectives
6. How Changes in Interest Rates affect Exchange Rates
7. Quantitative Easing

Question 5

4, Regulation of the Financial System

Answer 5

1. Regulation of Financial System in the UK
2. Why a Bank Might Fail
3. Moral Hazards
4. Systematic Risks
5. Liquidity Ratios and Capital Ratios