* Functions of a central bank:
- To implement monetary policy
- To influence exchange rates by intervening in foreign exchange markets
- To supervise the banking system
- To act as a lender of last resort for commercial banks
- Ways of implementing monetary policy:
* Setting minimum and maximum interest rates to control the credit system
* Controlling the amount of banknotes in circulation (issuing and withdrawing banknotes and coins)
* Open market operations - selling and buying government bonds to and from commercial banks
Open Market Operations
* Open market operations (OMO) - Est. vabaturu operatsioonid - purchases and sales of government securities by the Central Bank
- Open market purchase - a purchase of bonds by the Central Bank
- Open market sale - a sale of bonds by the Central Bank
Commercial banks
* Commercial banks trade in money:Receive and hold deposits
Pay money according to customers' instructions Lend money
Offer investment adviceExchange foreign currencies
Bank accounts
* Current account (Br)/ checking account (Am) - pays little interest, one can withdraw money any time
* (Fixed) deposit account (Br)/ time account or notice account (US) - pays a higher interest, money deposited for a fixed period of time
ESCB
* European System of Central Banks (ESCB) comprises the European Central Bank (ECB) and the national central banks (NCBs) of all EU member states
* Eurosystem - comprises the ECB and NCBs of those countries that have adopted the euro
* Euro area - teh EU countries that have adopted the eur
Currency
* Convertible currency - can be easily exchanged for another currency
* Hard currency - of a country which has a strong economy and which can be changed into other currencies easily
* Legal currency - legally used in a country
Exchange rates...
Exchange Money Conversion to Foreign Currency
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Wim Duisenberg at the 2001 Spring Meetings APRIL 2...