 Role of financial markets (see 1.1.5)  Market failure in the financial sector (see 1.3) Role of central banks

Students should be able to:  Explain the role of financial markets: to facilitate saving to lend to businesses and individuals to facilitate the exchange of goods and services to provide forward markets in currencies and commodities to provide a market for equities

A m______ of e________ used in payment for goods and services (rather than barter) A m__________ of v_______: used to compare goods and to draw up accounts A s________ of v______: money holds its value (unless we have very high inflation) and so is acceptable to buyers and sellers A m________ of d_________ p________: e.g. when using credit to purchase goods

How many years (approx.) has the Bank of England been issuing bank notes? What gives paper notes their value? How do the Bank of England make it hard for people to produce counterfeit money?

1. Who can lend money to individuals and businesses? 2. What are retail banks? Commercial banks? Investment banks? 3. What are “forward markets” in currencies and commodities? 4. What are equities? Corporate bonds? Gilts? 5. What are money markets? Capital markets? Foreign exchange markets? Commodity markets? Derivatives markets? Insurance markets?

Using the syllabus and your notes, create a mind map or summary of Make sure that you include the answers to the research questions Hand this in next lesson

Students should be able to:  Define market failure  Explain asymmetric information; externalities; moral hazard; speculation and market bubbles; market rigging  AS Theme 1 slides on Market Failure 1.3.

 What is market failure?   The result is a loss of e_________ and s______ welfare.  What is economic welfare?

 What is asymmetric information?  What are externalities?

 What is moral hazard?

 What is speculation and market bubbles?  Speculation is  Market bubbles occur when the

 What is market rigging?.

 Find examples of the different types of market failure discussed  E.g. the South Sea Bubble; PPI; securitisation of mortgages in the USA; Wall Street Crash etc.

 Asymmetric information  Externalities  Moral hazard (include the government’s implicit guarantee)  Speculation and market bubbles (include CDOs)  Market rigging (use for more information, what happened in November 2014)

 BBC News Business, 18 December 2012 – what is LIBOR? Why does it matter? What was the LIBOR rate- fixing scandal? What happened?

 What were the causes of the financial crisis?  Group the causes into failures in the financial sector and failures in regulation

Students should be able to:  Explain the key functions of central banks:  implementation of monetary policy  banker to the government  banker to the banks – lender of last resort  role in regulation of the banking industry

 _________________________________ is the central bank for the UK  The _____________________________ is the central bank for the USA  The ________________________ is the central bank for the Eurozone countries  The _______________________: Japan  The ________________________: China

 Act as b__________ to the banks: lender of last r__________  Act as banker to the g_______________  Implement m_________ policy (see 2.6.2)  Issue notes and c___________  Manage e___________ rates and the g______ and foreign currency reserves of the country (see 4.1.8)  Regulate the f_______________ industry

 What is shadow banking?  What is regulatory capture?

 Financial institutions must follow various rules and may be fined if they break them. E.g.  Financial institutions may be compelled to have enough reserves to cover any ___________ they make.

  Write a brief summary of banking regulation in the UK from the 1970s.  What were the three bodies responsible for financial regulation which were created by the 2012 Financial Services Act?