Banking matters Activity A. Current accounts

A. Listenand answer the questions below to Kate Barker, an economist and a member of the Bank ofEngland’s Monetary Policy Committee, talking about monetary policy.(T.18)

1. 
   What is the aim of monetary policy?
   
2. 
   What tools does a central bank use to control supply and demand for money?
   
3. 
   What tends to happen when interest rates rise?
   
4. 
   What tends to happen when interest rates fall?
   
5. 
   What do commercial banks do after the central bank changes the base rate at which it lends them money?
   

B.Check your understanding of the language Kate Barker uses by matching the words in the box with their definitions (1-8).
base rate consume incentive plant
capital demand labour supply

1. 
   encouragement or a reason to do something incentive
   
2. 
   factories, and the machines and equipment in them plant
   
3. 
   money invested in companies, to buy buildings, machinery, etc. capital
   
4. 
   the quantity of goods and services offered for sale by companies supply
   
5. 
   the rate at which the central bank lends money to commercial banks base rate
   
6. 
   to spend money on goods and services consume
   
7. 
   what people consume and how much they invest demand
   
8. 
   work done by people employed by businesses labour
   

Unit: Loans and credit
Warm up

• 
  How do commercial banks make a profit?
  
• 
  Banks make a profit from the spread or differential between the interest rates they pay on deposits and those they charge on loans.
  
• 
  How do banks decide who to lend money to?
  
• 
  Credit scoring is a system used by creditors to decide how much of risk it is to lend to you
  
• 
  How do they decide what rates to lend at?
  
• 
  Banks are generally free to determine their own interest rates it pays for deposits and charges for loan
  
• 
  How can large corporations raise finance?
  
• 
  Corporate bondsare issued by companies to raise capital
  
• 
  Why do large companies generally prefer not to borrow from banks?
  
• 
  They are an alternative to issuing new shares on the stock market (equity finance) and are a form of debt finance A bond is basically an IOU (short for 'I owe you') - a promise to pay back your original investment (the 'principal') at a maturity date, plus interest payments (the 'yield' or 'coupon') at regularintervals between now and then.