Topic 1 Flashcards
What four properties must money have?
- Sufficient in quantity
- Generally acceptable to all parties in all transactions
- Divisible into small units
- Portable
What are the four elements of intermediation?
- Geographic location
- Aggregation
- Maturity transformation
- Risk transformation
What are the Bank of England’s main functions?
- Issuer of banknotes
- Banker to the government
- Banker to the banks
- Adviser to the government
- Foreign exchange market
- Lender of last resort
- Maintaining economic stability
Who is responsible for setting interest rates and how often does the committee meet?
Monetary Policy Committee. They usually meet 8 times a year.
What is the difference between ‘proprietary’ and ‘mutual’ organisations?
Proprietary organisations are owned by their shareholders who have the right to dividends from the distribution of company profits
Mutual organisations does not have share holders and is in effect owned by its members. Examples of these are building societies and credit unions.
What is ‘demutualisation’?
When a mutual organisation changes to a proprietary organisation.
Example - A building society changes to a bank
Who owns and controls a credit union?
Owner by the members
Controlled by a voluntary board of directors
In order for a credit union to pay interest rather than dividends what criteria must they meet?
£50,000 or 5% (whichever is greater) of total assets in reserve.
What is the ‘interbank market’?
A very large market which recycles surplus cash held by banks, either directly between banks or more usually through the services of specialist money brokers.
What is maximum amount a building society can raise on the wholesale market?
50% of their liabilities
What does ‘SONIA’ stand for and what is it?
Sterling overnight index average
The rate of interest charged in the interbank market.
