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Money & banking

QuestionAnswer
State the factors which limit the ability of banks to create credit during recessionary times? Creditworthy customers/increased risks for banks, cash deposits in the bank, demand for loan/ credit by customers, Irish banks have weak balance sheets/ delayering, customers' demand for cash.
State the economic effects of quantitative easing for the economy? Increased bank lending, economic growth/jobs, possible inflation, interest rates, government bonds.
State the economic benefits of falling interest rates for the Irish economy? Borrowing encouraged, savings discouraged, reduced mortgage repayments, cost of servicing the national debt, costs of production/ increased competitiveness, incentive to invest, economic growth, encouraged, taxation revenues, employment.
State the four functions of money? Medium of exchange, measure of value, store of wealth, standard for deferred payment.
Define the monetary policy? Those actions by the ECB, which influences the money supply, interest rates & the availability of credit.
Define the central bank's function as 'lender of last resort'? The central bank offer credit to financial institutions experiencing financial difficulties/ liquidity problems and are unable to obtain necessary funds elsewhere.
State the reasons why commercial banks in Ireland should be regulated? Protect consumers, proper lending policies, banking system stability, economic stability/confidence, less need for government intervention, less need for EU/IMF funds
State the economic effects of rising interest rates on the Irish economy? Borrowing discouraged, savings encouraged, increased mortgage repayments, increased cost of servicing the National Debt, increased costs of production/reduced competitiveness, disincentive to invest, economic growth hindered, taxation revenue effects.
Explain the term commercial banks? Institutions which provide deposit/ lending services to personal consumers/ business.
Define the term nationalisation? Taking an industry or assets into public ownership by a government.
State the economic arguments for nationalisation? Stability to economy /investor confidence, availability of credit,rationalisation of banking services, employment/consumer protection, development of ethical banking practices, continued provision of banking services to the community.
State the economic arguments against for nationalisation? Unnecessary state interference, shareholders penalised, increased taxation, opportunity costs, profit motive diminished, financial cost.
Define the term profitability? Refers to the need for a bank to make as much profits as possible from its assets to satisfy its shareholders. The more profitable the asset is the less liquid it is.
Define the term liquidity? Refers to the need by a bank to have liquid assets in order to meet the demand for cash by its customers. The more liquid the asset is the less profitable it is.
State the earning assets for a bank and their correct holding structure percentage? Term loans & overdrafts(50%) and Government stock/gilt edged securities(20%).
State the liquid assets for a bank and their correct holding structure percentages? Exchequer bills/bills of exchange(12%), Money at call(8%), Cash deposits(10%).
State the effects a reduction on the availability of credit has on the Irish Motor Industry? Decreased demand for cars, increased redundancies, business closure/consolidations.
State the effects a reduction on the availability of credit has on Inflation? Inflation will increase/deflation.
State the effects a reduction on the availability of credit has on Ireland's Balance of Payments? Imports decrease or increase and exports decrease.
State the role of the Central Bank & Financial Services Authority of Ireland? Prints/Issues legal tender, governments bank, bankers' bank/regulator to financial sector/issues licences to financial institutions, official external reserves, maintains price stability, provide consumer information/economic research-central bank reports
Define Medium of exchange? Money allows us to buy and sell goods & services independently of each other.
Define Measure of value? The use of money allows us to put a value on an item and relate the value of one item to the value of others.
Define Store of wealth? The use of money allows us to save some of our wealth for the future.
Define Standard for deferred payment? The use of money allows us to buy goods and services on credit now and pay later.
State the economic effects if the supply of money grows at a faster rate than a country's production of goods and services. Inflation, Imports, savings, Value of the country in non-euro zone country may fall, Rate of interest.
State the economic effects if the supply of money grows at a slower rate than a country's production of goods and services. Deflation, Falling demand.
Created by: deborahh
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