MPCB

• Monetary theory

  Macroeconomic concept that suggests the currency or money supply plays an important role in economic activities
• Money supply is increased

  Economic activity is likely to increase
• Money supply is decreased

  Economic activity is likely to decrease
• Central bank

  Financial institution with the authority to exercise special control over the production and distribution of money and credit within a country or group of countries
• Reserve Ratio

  • Percentage of reserves or reservable liabilities that a bank must retain against deposits as opposed to lending to or investing in them
• Discount rate

  Interest rate that central banks charge commercial banks that need extra reserves
• Open market operations (OMO)

  Buying and selling of government securities
• Outright transactions

  Central bank buys or sells financial assets without making any promises to buy them back or sell them at a later time
• Repurchase agreement (repo)

  Financial instrument used by central banks to increase the amount of money in circulation by buying assets and funding the banking industry
• Repurchase agreement (repo)

  Short-term interest rates typically decrease as a result of this action because banks are better equipped to lend money
• Reverse repurchase agreement, or reverse repo

  Causes the central bank to sell securities and temporarily remove money from the banking system, which lowers the amount of money in circulation
• Reverse repurchase agreement, or reverse repo

  Decrease in the money supply typically results in higher short-term interest rates
• Foreign exchange swaps

  Tool that central banks use to manipulate the amount of money in circulation
• Types of Index

  • Consumer Price Index (CPI)
  • Wholesale pricing index (WPI)
  • Producer Price Index (PPI)
• Full employment

  State of economic affairs known as full employment occurs when all labor resources are being employed as efficiently as possible
• Involuntary Unemployment

  Happens when people are unable to get employment even though they are eager and able to work at the going wage rates
• Inflation

  Price increases are known as inflation, which is referred to as the gradual loss of purchasing power
• Hyperinflation

  Happens when the country's currency depreciates quickly and inflation increases dramatically
• Stagflation

  Happens when a nation's unemployment rate rises and inflation stays high despite the nation's economy not expanding
• Interest rate

  Amount that the lender charges the borrower in addition to the principal amount
• Simple interest

  Interest paid on the principal amount only
• Compound interest

  Interest paid on both the principal amount and the accumulated interest
• Price system

  Each person acts with a great degree of autonomy in his or her roles as a producer, consumer, and owner of resources
• Free price system

  Prices for goods and services are determined by the forces of supply and demand in an open market, without interference or control from the government or other external factors
• Fixed price system

  Prices for goods and services are set and maintained at a predetermined level, typically by government regulation or intervention
• Mixed price system

  Incorporates elements of both fixed and free pricing mechanisms
• Foreign Exchange Rate

  Value of one country's currency in relation to another's currency
• Fixed Exchange Rate System

  Government sets the exchange rate for its currency, linking it to an external standard like gold or silver
• Flexible Exchange Rate system

  Determines a country's currency value through market interplay without government intervention
• Managed Floating Exchange Rate system

  Combines fixed and flexible rate systems, allowing foreign exchange rates to float freely
• Balance of Payments

  Framework that applies to various economies, from the smallest to the most advanced, to track all international monetary transactions
• Types of Balance of Payments

  • Current account
  • Capital account
  • Finance account
• Monetary policy

  Economic approach that governs the quantity and growth rate of the monetary quantity in an economy
• Monetary policy

  • Aims to attain or sustain full employment, an elevated level of economic growth, and price and wage stability
• Monetary Aggregates

  Used to measure the total sum of money in a country
• Overbought

  Extended price move upward (lower-left to upper-right)
• Oversold

  Extended price move downward (upper-right to lower-left)
• Repurchase agreement (repo)

  BSP lends to financial institutions on a short-term through repurchase agreement
• Reverse repurchase agreement (RRP)

  BSP sells government security to a bank to repurchase them at higher price on specified future date
• Outright transactions

  Direct purchase or sale of the government securities by the central bank from/to market with the intention of influencing the money supply and the overall economy