gcse economics - money -financial institutions

Organisations that provide financial services to their customers. The customers could be individuals or businesses.

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Financial institutions have several functions:

1. Keep money safely for customers
2. Help customers make payments (through cheques and cards)
3. Lend money to customers
4. Sell other products e.g. insurance, share dealing.

EXAMPLES

Commercial Banks

Abbey National
Lloyds TSB
Nat West

Building Societies

Derbyshire
West Bromwich

Online Banks

Egg (Part of Prudential)
Smile

The BANK OF ENGLAND is the CENTRAL BANK of the economy. It looks after the governments tax revenues and makes payments for government spending. It also oversees the operation of the banking system and makes loans to high street banks.

HOW THE SYSTEM WORKS

- High Street banks are regularly short of money

- They borrow from Bank of England

- Bank of England makes them pay money back + interest e.g. 5%

- High street banks lend this money to customers at a higher rate e.g. 6% in order to make a profit

Therefore if the Bank of England changes its base rate. All the other institutions will change their interest rates

ACTION

a. Why have a number of financial institutions set up on the internet?
b. What are the advantages of banking on line?
c. What problems may the banks have of selling solely on line?
d. What is the Central Bank?
e. What is its key power?

 SMART THINKING

a. Why do high street banks charge lenders a % higher than the base rate?
b. Why would a fall in the base rate kick start the economy?

These GCSE Economics revision notes have been kindly provided by Peter Davies of Mill Hill School, Ripley Keep Up-todate with your GCSE Economics - Subscribe Free to Economics in the News by Email

 

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