ECON 1010 Chapter 24: ECON1010 Notes - Chapter 24
24 Sep 2015
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Liquidity - property instantly convertible into means of payment with little loss of value; liquid assets are not money e. g. cheque or credit card. Banker to banks/government accept deposits from depository institutions to make up payments system. Lender of last resort make loan when banking system short of reserves: overnight loans market where banks lends/borrow from other banks. Sole issuer of bank notes - permitted to issue bank notes; monopoly: balance sheet components: Assets - government securities + last-resort bank loans; most important is gov. securities. Liabilities - boc notes and deposits of banks/government; most important is notes in circulation. To achieve interest rate of lending exceeds interest rate it pays on deposits; profit is restricted by need to: benefits. Loans generate profit & depositors must be able to obtain funds when they want them. Create liquidity by borrowing short and lending long. Pool risk by lending to 1000 people at once, loss from loan default is minimal.
