Topic One Flashcards
Money – must be
*Sufficient in quantity
● Generally acceptable
● Divisible
. Portable
Bank of England key functions
● Issuer of bank notes ● Adviser to the government o Monetary Policy Committee sets interest rates o Meets 8 times every year to decide ● Banker to the banks ● Foreign exchange market ● Lender of last resort
When Supply and demand are balanced…know as…
Equilibrium price
Gilts are
o Bonds issued by government to finance its debt
o Issued by debt management office
o Have a stated rate of interest (coupon) each year
Repo market is
Sale and repurchase agreement, most commonly based on gilts
▪ Lender takes legal ownership
▪ Borrower retains economic ownership
▪ Rate charged depends on security
Internank market
o Banks lend each other short term funds – overnight to six months
o unsecured
Treasury bills
Short term redeemable securities issued by the Debt Management Office o Less than 1 year o Normally 91 days o No interest o Issued at a discount to par value
Certificate of deposits
o Negotiable time deposits
o Interest rate is fixed for an agreed term
▪ 7 days to 3 months but can be up to 5 years
o Can be traded in the money markets
Commercial paper
o Short term unsecured borrowing o Borrowing company issues a promissory note o Discount to par value o Up to 1 year o Medium term notes > 1 year o Bonds > 5 years
Prospectus issue
o Issues shares to the public through an investment bank
Private placement
o Shares are placed with private institutions
Rights issue
Offers to existing shareholders at a discount
Four main reasons to transfer currencies
o International trade in goods
o International trade in services
o Short term investment
o Long term investment
Liability management
o Banks attract borrowers first, then find money to make the loan
Assest management
Banks accept deposits from customers before seeking customers to lend the funds to
