Definition for bill of exchange: A bill of exchange is a short dated security used to finance foreign trade. It can be cashed at any time by the supplier Examples – bills of exchange In the Commonwealth almost all jurisdictions have codified the law relating to negotiable instruments in a Bills of Exchange Act, e.g. …
Readers Question: Does low inflation always mean low-interest rates? Generally low inflation will lead to low-interest rates. Although in practice there may be some divergence. The UK has an inflation target of CPI = 2%. Therefore, interest rates are used to achieve this target. If inflation falls to below 2% the MPC will cut rates …
For manufacturing investment, the real interest rate is important for determining the viability of investment. Lower interest rates make it cheaper to borrow. Therefore lower interest rates tend to encourage business investment. High real interest rates discourage investment. How interest rates affect the efficiency of investment At lower interest rates, the marginal efficiency of capital …
Interest rates swaps are a way for financial bodies to exchange risk on the movement of interest rates. They were originally designed as a way for firms to avoid exchange rate controls because interest rate swaps can be done in different currencies. Interest rate swaps are one of the most common type of derivatives and …
Readers Question: What does it mean when Bank of England cuts interest rates by 50 base points? A basis point is one-hundredth of a percentage point. If the Bank of England cuts interest rates by 0.50% from 1.5% to 1.0%. This is a cut of 50 basis points. Usually, interest rates are cut in small …
Table of contents
On Wednesday 16 September 1992, the UK economy was in deep recession, with unemployment of 10% interest rates of 10%, and the Pound was struggling to maintain its value against the D-Mark. As soon as markets opened, financial investors piled in to sell pounds to a beleaguered government, and Sterling fell, reaching the floor of …
Things We Get Wrong About the EconomyWatch this video on YouTube The Government doesn’t actually print that much money The Bank of England is notionally independent, but heavily regulated by the government. Have you ever wondered how much physical cash the Bank of England printed last year? The net amount of notes in circulation increased …