Unit 1 - Topic 1 Flashcards
What is Money?
Money is a Medium of Exchange
What 4 things make money acceptable
Sufficient in Quantity
Generally accepted by all parties
Divisible into small units
Portable
What does Inflation mean?
The price of “stuff” goes up over time
example - the cost of a pint of milk
Financial Intermedary
e.g For banks borrowing money and lending out to Customers
Why are Financial Intermediaries required?
- Geographical location - Bank in every town/city
- Maturity Transformation - different products with different amounts ending at different times.
- Risk Transformation - spreading the risk on defaulted accounts
- Product Sales Intermediary - Mortgage Advisor, Insurance Broker
What is Disintermediation?
Lenders and Borrowers Interact directly
Example
Crowdfunding is an example - pitch online directly to customers cutting out middlemen.
What is the Bank Of England Job?
Acts as Banker to the Government
Maintain Economic Stability
Advisor to the Government
Issuer Of Notes
Banker to the banks
Manage Gold Reserves and foreign currency on behalf of the Treasury
Lender at last Resort e.g Northern Rock
Proprietory Organisations
LTD Companies
Banks & Other Companies
Owned by Shareholders
E.g Energy Companies
Mutual Organisations
Building Societies
Owned by its members
Members hold meetings to manage the organization
Credit Unions
Operated in poorer sections of the community to assist
Demmunitulisation
A mutual organization switches to a proprietory.
Interbank Market
Where banks can recycle funds through money brokers.
To Government & Other Financial institutions
Ring-Fencing
Introduced since financial crises - Funds are protected by a ring-fencing
Building Societies
Building Societies can only use 50% of their liabilities to raise funds
Whereby Bank have no restrictions
LIBOUR
Not in Operation
London Interbank Offered Rate
