Macro economics Flashcards Preview

AF4 Investment Planning > Macro economics > Flashcards

Flashcards in Macro economics Deck (6)
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1
Q

Name the 7 types of risk to investments.

A
  1. Inflation risk
  2. Interest rate risk
  3. Credit risk
  4. Currency risk
  5. Liquidity risk
  6. Operational risk
  7. Reinvestment risk
2
Q

What effect can high interest rates have on a country’s currency?

A

High interest rates results in higher demand for deposits in that country, therefore strengthens the currency of that country against other currencies.

3
Q

How does inflation impact on Fixed Interest investments?

A

In times of high inflation, the fixed return represents poorer value & the prices of Bonds fall as demand reduces. This does result in Bond yields increasing.

4
Q

What are the 5 main functions of the Bank of England?

A
  1. Control of interest rates
  2. The lender of last resort
  3. Control the money supply
  4. Banker to the Government
  5. Regulator (the Prudence Regulation Authority)
5
Q

Why might the BofE want to keep interest rates low?

A

Fuels demand (gives people more money to spend).

More spending=More money into companies for growth.

Encourages businesses to borrow more.

Keeps business costs down and therefore increasing profits & corporation tax.

Stimulates the housing market.

Encourages consumers & businesses to take risks.

Keeps down the cost of borrowing for the government.

Prevents gilt prices from falling too low.

6
Q

What are the four stages of the economic cycle?

A
  1. Boom
  2. Slowdown
  3. Recession
  4. Recovery