10 Questions
What is the role of the Central Bank in issuing currency?
Having a monopoly on issuing currency
Which entity can legally hold deposits at the Central Bank?
Commercial Banks
How does the Central Bank affect the economy?
By changing reserves for Commercial Banks
What type of financial assets does the Central Bank hold?
Government bonds
Which entity has a monopoly on issuing currency?
Central Bank
What is the main function of Commercial Banks in relation to the Private Sector?
Issuing loans to the Private Sector
What is the main reason for the importance of Commercial Banks to monetary policy?
They can hold deposits at the Central Bank
What has weakened the direct link between the Central Bank and the Private Sector, according to the text?
The decrease in currency usage
What type of assets are currently less closely associated with Quantitative Easing (QE)?
Deposits held at Commercial Banks
What is the formula for calculating the rate of profit of Commercial Banks, based on the given information?
$iCB = iR σR + iL σL + iOA σOA − iD$
Study Notes
Central Bank's Role in Currency Issuance
- The Central Bank has the sole right to issue currency, giving it a monopoly on currency issuance.
Deposits at the Central Bank
- Only commercial banks can legally hold deposits at the Central Bank.
Central Bank's Impact on the Economy
- The Central Bank affects the economy by controlling the money supply, interest rates, and credit conditions.
Central Bank's Assets
- The Central Bank holds financial assets, including government securities and foreign exchange reserves.
Commercial Banks' Role
- The main function of Commercial Banks is to provide loans to the private sector.
Importance of Commercial Banks in Monetary Policy
- Commercial Banks play a crucial role in monetary policy as they intermediate between the Central Bank and the private sector.
Weakened Link between Central Bank and Private Sector
- The development of financial markets has weakened the direct link between the Central Bank and the private sector.
Assets Less Associated with Quantitative Easing (QE)
- Government securities are currently less closely associated with Quantitative Easing (QE).
Calculating Commercial Banks' Rate of Profit
- The rate of profit of Commercial Banks can be calculated as the difference between the interest earned on loans and the interest paid on deposits.
Test your knowledge about the banking system, central banks, and financial institutions with this quiz from the University of Bath. The quiz covers topics related to money, commercial banks, the central bank, and the private sector in the context of macroeconomics.
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