1. Which of the following are wholesale and which are retail?
(a) Large-scale deposits made by firms at negotiated rates of interest. (b) Loans made by high street banks at published rates of interest. (c) Deposits in savings accounts in high street banks. (d) Deposits in savings accounts in building societies (e) Large-scale loans to industry syndicated through several banks.
wholesale retail retail retail wholesale
A building society is a financial institution owned by its members. In the UK today, building societies actively compete with banks for most consumer banking services, especially mortgage lending and deposits.
the phrase "high street banks" has been widely used to refer to the retail banking sector in the United Kingdom.
Retail banking refers to banking in which banking institutions execute transactions directly with consumers, rather than corporations or other banks. Services offered include: savings and transactional accounts, mortgages, personal loans, debit cards, credit cards, and so forth.
Wholesale banking is the provision of services by banks to the likes of large corporate clients, mid-sized companies, real estate developers and investors, international trade finance businesses, institutional customers (such as pension funds and government entities/agencies), and services offered to other banks or other financial institutions. In essence, wholesale banking services usually involve high value transactions.
2. Rank the following assets of a commercial banks in order of decreasing liquidity.
High liquidity Cash
Reserves with the Bank of England
Market loans (Short term page 308) Sale and repurchase agreements (repos) (Short term page 308) Government bonds (of from one to five years to maturity) (long-term page 309) Personal loans (=advances = long-term page 309) Mortgages (long-term . Least liquid. page 310) Low liquidity
3. Consider the items in the following table, selected from a Bank A’s balance sheet LIABILITIES Sight deposits Time deposits Certificates of deposit in Bank A Repos £bn ASSETS £bn 2 1 77 20 100 Notes and coin 110 Reserve balances with B of E 40 Market loans 20 Bill of Exchange
Loans from other financial
Advances 300 Total
See page 308-310 for long versus short term loans and liquidity (b) (c) (d) What is the cash ratio? What is the total of liquid assets What is the liquidity ratio? 3/300 = 1/100 or 0.01 or 1% £100bn 100/300 = 1/3 or 0.33 or 33%
4. Assuming that banks choose to maintain a liquidity ratio of 20 per cent and assuming that new cash deposits of £100m are made in the banking system: Banks receive
£m 100 80
Hold Lend Hold Lend Hold Lend Hold Lend Hold Lend
80 16 64 12.8 51.2 10.24 40.96 8.19 32.77
Second round deposits rise by
Third round deposits rise by
Fourth round deposits rise by
Fifth round deposits rise by
Total deposits after five rounds
4. Assuming that banks choose to maintain a liquidity ratio of 20 per cent and assuming that new cash deposits of £100m are made in the banking system: (b) How much credit will have been created after five rounds? £336.16 – £100 = £236.16
To what level will total deposits eventually increase?
Define the bank deposits multiplier The number of times greater the expansion of bank deposits is than the additional liquidity in banks that caused it: 1/L (the inverse of the liquidity ratio) What is the bank multiplier in this case? How is it related to the liquidity ratio? 5 The inverse. 1/5
6. Which of the following will cause the UK money supply to rise; which will cause it to fall; and which will cause no direct change?
A balance of payments surplus (under a fixed rate of exchange) The government finances the public-sector net...