Definition of Zero-Bound Interest Rate Typically, central banks lower interest rates to encourage borrowing and spending, which stimulates economic growth. However, when interest rates hit the zero lower bound, this traditional approach becomes ineffective. At this point, the central bank must explore alternative strategies to support the economy. Causes of … …
What is Numismatics? Numismatics is the study and collection of coins, banknotes, and other forms of currency. It is a field that combines elements of history, archaeology, economics, and art. Numismatists, or coin collectors, study and analyze coins to gain insights into the historical, cultural, and economic aspects of a … …
What is Common Equity Tier? Common Equity Tier (CET) is a key measure used in the banking industry to assess a bank’s financial strength and ability to absorb losses. It represents the highest quality capital that a bank holds and serves as a buffer to protect against potential losses. Definition … …
Fiscal Austerity Measures Fiscal austerity measures refer to the actions taken by governments to reduce their budget deficits and control public spending. These measures are typically implemented during times of economic crisis or when a country’s debt levels become unsustainable. The goal of fiscal austerity is to restore fiscal discipline … …
The Meaning, Function, and History of the Old Lady The term “Old Lady” is often used to refer to the Bank of England, the central bank of the United Kingdom. This nickname dates back to the 18th century and has been used to describe the institution ever since. The Old … …
Tapering: Fed’s Strategy The Federal Reserve’s strategy for tapering refers to the gradual reduction of its monthly bond purchases, which have been implemented as part of its quantitative easing program. Tapering is a key tool used by the Fed to manage the economy and control inflation. What is Tapering? Why … …
What is Quantitative Easing? Quantitative Easing (QE) is a monetary policy tool used by central banks to stimulate the economy when traditional methods, such as lowering interest rates, are no longer effective. It involves the central bank buying government bonds or other financial assets from commercial banks and other financial … …
What is a National Currency? A national currency is the official form of money that is used within a country’s borders. It is issued and regulated by the government or central bank of the country and serves as a medium of exchange for goods and services. The national currency is … …
Narrow Money Definition Physical currency: This includes all the notes and coins in circulation within an economy. These are the tangible forms of money that individuals and businesses can use for transactions. Demand deposits: These are funds held in checking accounts or current accounts that can be withdrawn on demand. … …
Moral Suasion: Definition, Usage, and Example Moral suasion is a term used in the field of monetary policy to refer to the use of persuasion and moral influence by central banks or regulatory authorities to encourage or discourage certain behaviors in financial institutions or market participants. It is a non-binding … …
What is Monetary Base? The monetary base consists of two main components: currency in circulation and reserves held by commercial banks at the central bank. Currency in circulation includes all the physical cash, such as coins and banknotes, that is held by individuals and businesses. Reserves, on the other hand, … …
M2 Definition and Meaning in the Money Supply What is M2? M2 is a broader measure of the money supply compared to M1, which only includes physical currency and coins, demand deposits, and other highly liquid assets. M2, on the other hand, includes M1 and adds other types of deposits … …
Definition of Liquidity Trap A liquidity trap is an economic situation in which interest rates are very low, and monetary policy measures, such as lowering the central bank’s interest rate, fail to stimulate economic growth and increase inflation. In a liquidity trap, people and businesses prefer to hold onto cash … …
Section 3: The Function of Kangaroos in the Bond Market Kangaroos play a crucial role in the bond market, serving as a key indicator of market sentiment and economic conditions. As a highly liquid and widely traded asset, kangaroos provide investors with an opportunity to diversify their portfolios and manage … …
International Monetary Fund (IMF): Overview and Role in Global Economy The International Monetary Fund (IMF) is an international organization that works to promote global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. It was established in 1944 … …
What is International Banking Facility (IBF)? An International Banking Facility (IBF) is a specialized banking unit that operates within a country’s domestic banking system but is exempt from certain regulations and restrictions. It is designed to facilitate international banking transactions and attract foreign investments. Definition Purpose The main purpose of … …
Role of HKMA in Monetary Policy One of the key roles of the HKMA in monetary policy is to manage the exchange rate of the Hong Kong dollar (HKD) against other major currencies, particularly the US dollar. This is done through a currency board system, where the HKMA ensures that … …
Helicopter Drop: Economics Examples and Types The concept of a helicopter drop in economics refers to a monetary policy tool that involves the central bank injecting large amounts of money directly into the economy. This unconventional method is often used as a last resort to stimulate economic growth and combat … …
The Basics of Fixed Income Investments There are several types of fixed income investments, including bonds, certificates of deposit (CDs), and Treasury bills. Bonds are debt securities issued by governments, municipalities, and corporations to raise capital. They pay interest to investors at a fixed rate and return the principal amount … …
What is the Group of Seven (G7)? The Group of Seven (G7) is an international organization consisting of seven of the world’s largest advanced economies. It was established in 1975 as an informal forum for discussions on global economic issues. The G7 aims to promote economic stability, sustainable growth, and … …
Foreign Exchange Reserves: The Basics The primary purpose of foreign exchange reserves is to ensure that a country has enough foreign currency to meet its international payment obligations and maintain confidence in its currency. These obligations can include imports of goods and services, debt repayments, and other international transactions. Composition … …
Flow of Funds Accounts: Definition The Flow of Funds Accounts is a financial reporting system that provides a comprehensive overview of the flow of funds in an economy. It tracks the movement of money and financial assets between various sectors, such as households, businesses, government, and financial institutions. The accounts … …
European Central Bank: Definition, Structure, and Functions The ECB has several important functions. Its primary objective is to maintain price stability in the eurozone, aiming for an inflation rate of below, but close to, 2% over the medium term. To achieve this, the ECB uses various monetary policy tools, such … …
Demonetization: Definition, Illustration, and Mechanism Demonetization is a monetary policy measure implemented by governments to replace the existing currency with a new one. It involves the withdrawal of the current currency from circulation and replacing it with a new set of banknotes or coins. This process is usually done to … …
The Importance of Currency Currency plays a vital role in the global economy and is essential for conducting trade and commerce. It serves as a medium of exchange, facilitating the buying and selling of goods and services. Currency allows individuals and businesses to value and exchange their assets, making it … …