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The functions of central banks
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.
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. It prints and issues currency - putting banknotes into circulation. It also participates in clearing cheques and settling debts among commercial banks.
Central banks can act as lender of last resort, which means lending money to financial institutions in difficulty, to allow them to make payments. They manage a country's reserves of gold and foreign currencies.
Comprehension
1. Are the following statements true or false?
1. The economy can function without banking.
2. Banking is the process of accepting and protecting money owned by individuals and organizations.
3. Business banks deal directly with consumers and small business owners.
4. Private banks normally provide wealth management services to high net worth families and individuals.
5. Investment banks provide such services as mergers and acquisitions.
6. Privately owned banks are held by the state governments of the individual countries and they serve as a nation’s centralized bank.
7. Retail banks are responsible for monetary policy.
8. The corporate bank supervises and regulates the banking system.
9. The central bank prints and issues currency.
10. Investment banks can act as lender of last resort.
Vocabulary
Match the words with the definitions below.
| 1) bank | a) an institution which accepts deposits, makes business loans, and offers related services |
| 2) financial markets | b) a company, piece of land, etc. bought by another company |
| 3) interest rate | c) an organisation that provides various financial services |
| 4) merger | d) the system of money that a country uses |
| 5) banking | e) a rate which is charged or paid for the use of money |
| 6) commercial bank | f) a mechanism that allows people and entities to buy and sell financial securities, commodities, and other items of value at low transaction costs and at prices that reflect supply and demand |
| 7) currency | g) the process of accepting and protecting money owned by individuals and organizations |
| 8) acquisition | h) the act of joining two or more organisations or businesses into one |
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