Topic 6 Key Terms Flashcards
Bank liquidity
The amount of cash banks are required to hold in relation to the amount they have in customer deposits.
Bank rate
The interest rate that the Bank of England uses when it lends money to other banks. Financial services providers take account of the Bank rate when they decide how to set interest rates on their own products.
Commodity
Goods that share the same characteristics wherever they are produced and whoever produces them – unlike a manufactured product, where different manufacturers can add specific features. Examples include raw materials such as iron ore, gold and silver, or agricultural produce such as wheat and rice.
Corporate bond
A product that companies can use to borrow money over periods of five years or more. The company offers a number of bonds for sale; buyers can then sell the bonds on to other investors if they wish. A key difference between bonds and shares is that bondholders do not own a share in the company.
Corporate social responsibility
Any action or project in which a company goes beyond the interests of its shareholders and senior management in order to benefit other stakeholder groups, normally with either a social or an environmental purpose. Also known as citizenship or sustainable responsible business.
Creditor
Person or organisation to which a debtor owes money.
Debtor
A person who owes money.
Emerging market
A nation in the process of rapid economic growth and involvement in international trade.
Ethical brand
A brand that emphasises issues such as its sustainable, socially responsible approach to production and marketing – this might include limiting the impact on the environment or not exploiting workers. In financial services terms it can mean a product that is not targeted at unsuitable customers.
European Commission
The executive body of the European Union responsible for proposing legislation, implementing decisions, upholding the Union’s treaties and day- to-day running of the EU.
Exchange rates
The price of one currency in terms of another; eg it enables people to calculate how many US dollars can be purchased with one pound sterling.
Gilts
A bond issued by the UK government – it is a way for the government to borrow money. Most gilts are issued with a redemption date, ie the date at which the government agrees to buy them back. Between their issue and the redemption date, the gilts can be traded.
Global warming
A gradual increase in the overall temperature of the earth’s atmosphere thought to be caused by humans.
Globalisation
The integration of economies, industries, markets, cultures and policy-making around the world.
Gross domestic product
The total value of goods produced and services provided in a country during one year.
Inflation
A general rise in prices, which means that the purchasing power of money falls.
Interest rates
The amount, expressed as a percentage, that a financial services provider charges a borrower when it lends money, or pays to a saver
International Monetary Fund
An international body of 189 countries that aims to promote international co- operation on exchange rates and other economic matters.
Monetary Policy Committee
The Bank of England committee responsible for keeping inflation under control by the manipulation of interest rates.
Offshoring
The practice of moving some of a company’s operational functions to overseas locations.
Outsourcing
The process of one provider paying another to carry out certain functions that it would normally do itself.
Productivity
How much is produced for a given effort or amount of input. For example, productivity increases if one worker produces 10% more goods in a week.
Project Merlin
The project that resulted in an agreement between the government and the main banks to pay lower bonuses to their employees and make more money available for business loans.
Protectionism
Government policies designed to protect a country’s own businesses and workforce. For example, imposing taxes on goods made overseas might mean that goods produced in the home country are less expensive and so consumers will be encouraged to buy home-produced goods rather than imported ones.
Public sector debt
The amount the government has to borrow to bridge the gap between the income it receives (eg from taxation) and the amount it spends (eg on services such as the NHS).
Recession
A period of at least six months in which the amount of goods and services the country is producing is shrinking.
Reshoring
The term given to bringing back functions that were once offshored.
Sub-prime mortgage
A type of mortgage that is normally taken out by those with low credit ratings and is therefore more likely than the average mortgage not to be repaid.
‘Too big to fail’
A phrase used frequently during the 2007–08 financial crisis. It expresses the idea that the consequences of one or more of the big banks failing would be so economically disastrous that no government could allow it to happen.
Toxic debt
Debt that has a low chance of being repaid with interest.
