Qatar Economic Outlook Issue Number 13

Appendix: Economic and Financial Terms 
 
121 
What is quasi money? 
Quasi money is the less liquid part of the 
money supply and includes savings deposits 
and all deposits denominated in foreign 
currencies. 
What is broad money, or M2? 
This is the sum of quasi-money and M1. 
What is the monetary multiplier? 
The monetary multiplier is the ratio of the 
broad money supply to the monetary base. In 
practice, it is the amount of money generated 
by the Qatari banking system from each 
Qatari Riyal deposited with the banking 
system. It measures the ability of the 
economy to create money from deposits 
available in the banking system, reflecting the 
level of economic activity. However, the 
calculation of the multiplier depends mainly 
on the mandatory required reserve ratio set 
from time to time by the Qatar Central Bank, 
made in light of developments in the 
economy such as inflation rates and the level 
of aggregated demand, which reached 4.5% 
in August 2018. This required reserve ratio 
obliges the commercial banks not to lend 
4.5% of their total deposits and instead to 
save it as reserves in their vaults or at the 
Qatar Central Bank. Its implication is that if 
the ratio increases, the ability of banks to 
create credit decreases, but if this ratio 
decreases, the ability of banks to offer credit 
increases. The money multiplier of Qatar has 
increased from 5.5 points in 2009 to about 9 
points in June 2018, which means that 
depositing QR100 in local banks would 
create about QR 550 in 2009 or QR 900 in 
June 2018, indicating the increasing role of 
banking deposits to generate credits, and 
thus the formation of wealth. 
What are official foreign reserves? 
These are the central bank’s liquid foreign 
assets that can be used to secure the 
country’s external payments at any moment. 
Reserves include gold, foreign exchange, 
and the reserve position at the International 
Monetary Fund. Reserves are usually 
presented in net terms by excluding the 
central bank’s foreign liabilities from the 
gross official foreign reserves. 
Financial market concepts 
What is a secondary market? 
A secondary market is one where investors 
can trade assets or securities with others, as 
opposed to simply purchasing them from the 
issuing entities themselves. 
What are second-lien debt offerings? 
Second-lien debts are subordinate to the 
rights of other, more senior debts issued 
against the same collateral, or a portion of the 
same collateral. In the event of a default, 
second-lien debts stand behind higher-lien 
debts in terms of rights to collect proceeds 
from the debt’s underlying collateral. For this 
reason, second-lien debt is usually 
considered riskier than higher-lien debt and 
often comes with a higher interest rate. 
Issuing such securities usually points to 
financing difficulties, meaning the issuer is 
unable to obtain funds via traditionally 
established avenues. 
What is “credit”? 
Credit creation involves the provision of 
resources by the lender (such as banks or 
any other financial institution) to the 
borrower. In this way, the lender acquires a 
financial claim and the borrower incurs a 
liability to repay in the future. Credit to non-
financial sectors (such as government, 
private businesses and households) is mainly 
used to finance production, consumption, 
and capital formation. 

---