Central banks and monetary policy

A central bank, like the Bank of England, manages a country's money supply, sets interest rates, and keeps the financial

Financial markets and monetary policy

Central banks and monetary policy

Monetary policy means the central bank uses three main tools to manage the economy. Those tools are interest rates, the

Financial markets and monetary policy

Central banks and monetary policy

The UK government sets the goals that monetary policy must hit. The main goal is to keep inflation low and stable, curre

Financial markets and monetary policy

Central banks and monetary policy

The MPC is a committee inside the Bank of England. It meets every six weeks and sets the bank rate — the benchmark inter

Financial markets and monetary policy

Central banks and monetary policy

The MPC looks at a range of economic data before deciding whether to raise, cut, or hold the bank rate. Key factors incl

Financial markets and monetary policy

Central banks and monetary policy

When a currency rises or falls in value, it changes the price of exports and imports. This shifts aggregate demand — tot

Financial markets and monetary policy

Central banks and monetary policy

The monetary policy transmission mechanism describes how a change in the bank rate ripples through the economy. It affec

Financial markets and monetary policy

Central banks and monetary policy

The Bank of England uses several tools to control how much money circulates in the economy. These tools include changing

Financial markets and monetary policy

Central banks and monetary policy

The Bank of England sits at the centre of the UK's monetary policy — the use of interest rates, money supply, and the ex

Financial markets and monetary policy

Commercial banks and investment banks

A commercial bank takes deposits from savers and lends money to households and businesses. An investment bank helps comp

Financial markets and monetary policy

Commercial banks and investment banks

Commercial banks accept deposits from savers and lend that money to borrowers. They also operate payment systems and cre

Financial markets and monetary policy

Commercial banks and investment banks

A commercial bank's balance sheet lists everything the bank owns (its assets) and everything it owes (its liabilities).

Financial markets and monetary policy

Commercial banks and investment banks

Commercial banks pursue three goals at once: staying liquid enough to meet withdrawals, earning profit on loans, and kee

Financial markets and monetary policy

Commercial banks and investment banks

A commercial bank wants to be liquid, profitable, and secure — but pursuing one goal can make the others harder to achie

Financial markets and monetary policy

Commercial banks and investment banks

Banks create new money every time they make a loan. The borrower's account grows, and that new deposit can be lent out a

Financial markets and monetary policy

Commercial banks and investment banks

Banks are not all the same: commercial banks take deposits and lend to households and businesses, while investment banks

Financial markets and monetary policy

The regulation of the financial system

Several official bodies oversee the UK's banks and financial markets. Each body targets a different type of risk to keep

Financial markets and monetary policy

The regulation of the financial system

Banks borrow money from depositors at short notice and lend it out for years. If too many depositors demand their money

Financial markets and monetary policy

The regulation of the financial system

Regulators force banks to hold minimum levels of liquid assets and own capital. These rules reduce the risk of a bank co

Financial markets and monetary policy

The regulation of the financial system

Moral hazard occurs when a safety net encourages riskier behaviour. Banks that expect a government rescue take bigger ri

Financial markets and monetary policy

The regulation of the financial system

Systemic risk means one bank's failure can drag down the whole financial system. That collapse then damages businesses,

Financial markets and monetary policy

The regulation of the financial system

Banks and financial markets can cause serious damage to the wider economy when they fail, so regulators — bodies with th

Financial markets and monetary policy

The structure of financial markets and financial assets

Money is anything that people widely accept as payment. It works because it has four key functions: it lets people buy t

Financial markets and monetary policy

The structure of financial markets and financial assets

The money supply is the total amount of money in an economy. Narrow money covers only the most liquid forms, like cash.

Financial markets and monetary policy

The structure of financial markets and financial assets

Financial markets are split into three types based on what they trade. The money market handles short-term borrowing, th

Financial markets and monetary policy

The structure of financial markets and financial assets

Financial markets connect people who have money to spare with people who need to borrow or invest it. This process funds

Financial markets and monetary policy

The structure of financial markets and financial assets

Debt means borrowing money that must be repaid, usually with interest. Equity means selling a share of ownership in a co

Financial markets and monetary policy

The structure of financial markets and financial assets

When market interest rates rise, bond prices fall — and when rates fall, bond prices rise. This happens because a bond p

Financial markets and monetary policy

The structure of financial markets and financial assets

Financial markets are the organised systems through which money, loans, shares, and currencies are bought and sold, and

Financial markets and monetary policy