jennie TKN - chaeyoung edk

Unit 23:

Central banking

A. The functions of central banks.

B. The central bank and the commercial banks.

C. Central banks and exchange rates.

Đoan Khanh - Kim Ngân

ngân hàng trung ương

chính sách tiền tệ

ổn định tài chính

giám sát

điều lệ

phát hành tiền tệ

central bank

monetary policy

financial stability

supervises

regulates

issues currency

The functions of central banks

What are the man functions of central banks?

Well, most countries have a central bank that provides financial services to the government and to the banking system. If a group of countries have a common currency, for example the euro, they also share a central bank, such as the European Central Bank in Frankfurt.

What are the man functions of central banks?

Some central banks are responsible for monetary policy - trying to control the rate of inflation to maintain financial stability. This involves changing interest rates. The aim is to protect the value of the currency - what it will purchase at home and in other currencies.

What are the man functions of central banks?

In many countries, the central bank supervises and regulates the banking system and the whole financial sector. It also collects financial data and publishes statistics, and provides financial information for consumers. In most countries, the central bank prints and issues currency - putting banknotes into circulation. It also participates in clearing cheques and settling debts among commercial banks.

tỷ lệ tài sản dự trữ

hệ thống tài chính

rút tiền hàng loạt

người cho vay cuối cùng

cứu trọ tài chính

revserve-aset ratio

financial system

bank run = run on the bank

lender of last resort

bail out

The central bank and the commercial banks.

How exactly does the central abnk supervise the commercial banks?

Well, commercial banks have to keep reserves - a certain amount of their deposits - for customers who want to withdraw their money. These are held by the central bank, which can also change the reserve asset ratio - the minimum percentage of its deposits a bank has to keep in its reserves.

If one hank goes bankrupt, is can quickly affect the stability of the whole financial system. And if depositors think a bank is unsafe they might all try to withdraw their money. If this happens it's called a bank run or a run on the bank, and the bank will quickly use up its reserves. Central banks can act as lender of last resort, which means lending money to financial institutions in difficulty; to allow them to make payments. But central banks don't always bail out or rescue banks in difficulty, because this could lead banks to take risks that are too big.

ngoại tệ

tỷ giá hối đoái

can thiệp

thị trường tiền tệ

cung ứng

nhu cầu

foreign currencies

exchange rate

intervening

currency markets

supply

demand

Central banks and

exchange rates

What about exchange rates with foreign currencies?

Central banks manage a country's reserves of gold and foreign currencies. They can try to have an influence on the exchange rate - the price at which their currency can be converted into other currencies. They do this by intervening on the currency markets, and moving the rate up or down by buying or selling their currency. This changes the balance of supply - how much is being sold - and demand - how much is being bought.

Multiple Choice

1. The central bank will sometimes lend money

• A.

  if they could always be sure of rescue by the central bank

• B.

  if there is a run on a commercial bank

• C.

  if monetary policy is successful

• D.

  printing and distributing banknotes

• E.

  the amount of money commercial banks are able to lend.

Multiple Choice

2. Banks would probably start taking too many risks

• A.

  if they could always be sure of rescue by the central bank

• B.

  if there is a run on a commercial bank

• C.

  if monetary policy is successful

• D.

  printing and distributing banknotes

• E.

  the amount of money commercial banks are able to lend.

Multiple Choice

3. Central banks are usually responsible for

• A.

  if they could always be sure of rescue by the central bank

• B.

  if there is a run on a commercial bank

• C.

  if monetary policy is successful

• D.

  printing and distributing banknotes

• E.

  the amount of money commercial banks are able to lend.

Multiple Choice

4. The central bank can alter

• A.

  if they could always be sure of rescue by the central bank

• B.

  if there is a run on a commercial bank

• C.

  if monetary policy is successful

• D.

  printing and distributing banknotes

• E.

  the amount of money commercial banks are able to lend.

Multiple Choice

5. There will be low and stable inflation

• A.

  if they could always be sure of rescue by the central bank

• B.

  if there is a run on a commercial bank

• C.

  if monetary policy is successful

• D.

  printing and distributing banknotes

• E.

  the amount of money commercial banks are able to lend.

Fill in the Blank

Today the Federal Reserve's duties fall into four general areas:

→ conducting the nation's (a) ___ policy;

Fill in the Blank

→ (b) ___ and regulating banking institutions and protecting the credit rights of consumers;

Fill in the Blank

→ maintaining the (c) ___ of the financial system; and

Fill in the Blank

→ providing certain (d) ___ services to the US government, the public, financial institutions, and foreign official institutions.

Multiple Choice

1. ___(*) including setting interest rates, is designed to maintain ___

• bank run

• monetary policy

• exchange rate

• financial stability

• currency markets

Multiple Choice

1. ___ including setting interest rates, is designed to maintain ___(*)

• bank run

• monetary policy

• exchange rate

• financial stability

• currency markets

Multiple Choice

2. If there's a ___(*) and the bank goes bankrupt, this can have a rapid effect on the whole ___

• bank run

• financial system

• exchange rate

• financial stability

• currency markets

Multiple Choice

2. If there's a ___ and the bank goes bankrupt, this can have a rapid effect on the whole ___ (*)

• bank run

• financial system

• exchange rate

• financial stability

• currency markets

Multiple Choice

3. On one day in 1992, the Bank of England lost over £1 bilion (more than half of the country's foreign reserves) in the ___ (*), trying to protect the ___ of the pound.

• bank run

• financial system

• exchange rate

• financial stability

• currency markets

Multiple Choice

3. On one day in 1992, the Bank of England lost over £1 bilion (more than half of the country's foreign reserves) in the ___, trying to protect the ___ (*) of the pound.

• bank run

• financial system

• exchange rate

• financial stability

• currency markets

Thanks for listening!