Central Bank Financial System PDF

 MILIEU OF THE ​ CENTRAL BANK​ THE FINANCIAL SYSTEM​ Ranydhel R. Sardenio  FINANCIAL SYSTEM It is essentiall...

 MILIEU OF THE ​ CENTRAL BANK​ THE FINANCIAL SYSTEM​ Ranydhel R. Sardenio  FINANCIAL SYSTEM It is essentially concerned with borrowing and lending and has six parts or elements ​: Lenders (surplus economic units) and borrowers (deficit economic units)​ Financial intermediaries​ Financial instruments​ Creation of money ​ Financial markets​ Price discovery​  There are a number of allied participants in the financial system, i.e. participants other than the principals(those which have financial liabilities or assets or both). The principals are: lenders, borrowers and financial intermediaries. The allied non-principal participants in the financial system are:​ Financial exchanges and broker-dealers, Fund Liabilities and Assets  1.5.2.4 Foreign Loans Foreign Loans: Central banks may take foreign loans in exceptional situations, typically when they face balance of payments problems (when a country has more money flowing out than coming in). These loans help stabilize the economy, but they are rare and usually temporary. 1.5.2.5 Central Bank Securities Central Bank Securities: These are short- term debt instruments (maturing in less than a year) issued by central banks to manage the country’s money supply. The names vary by country (e.g., debentures, certificates, bills). Purpose: The main goal is monetary policy— to control liquidity in the financial system.  Example: 1.5.3.3 Loans to Banks banks have borrowed LCC 400 billion at the KIR, which shows Loans to Banks are loans that that the banks are complying the central bank makes to with the Required Reserves commercial banks, often to (RR), largely because of their provide liquidity. These loans need to borrow these reserves are typically short-term and may from the central bank. be part of the central bank’s role as a lender of last resort. Why It Matters: Monetary Policy Tool: By 1.5.3.3 Loans to banks Item controlling how much banks G, loans to banks, is at the borrow and at what rate, the heart of monetary policy. In central bank can influence the normal times, most central amount of money banks have banks compel the banks to to lend to businesses and borrow reserves from them (BR) individuals, which affects the at their key interest rate (KIR) broader economy. at all times. KIR has many names, such as discount rate, Interest Rate Influence: The repo rate, bank rate, base rate. KIR affects not only how much banks pay for borrowing but also the rates they charge on loans and the interest they pay on deposits. Thank you for listening!!!  FM 300 - G Group 1 MEMBERS Quinilitan, Zyra Sardenio, Ranydhel Morales, Fadel Plasangga, Oliver De Los Reyes, Kyle Monding, Hanilyn Alosnos, Chayanne