金融业导论期末1 other function of Bank of England（选择）[Note issue]Bank of England should ensure that there are sufficient banknotes circulating in the financial market, and whether the issued note could be accepted by public relies on people’s trust rather than backed by gold. And issue banknotes also be permitted in other seven banks in the UK expect Bank of England. Three of them are in Scotland, and the rest four are in Northern Ireland.[International Relations] It means Bank of England should work with other Central Banks in the world and services are provided for them. Except that, Bank of England also is a member of many international financial institutions such as the International Monetary Fund. [Private banking] Bank of England provide this service only limited to the accounts were opened before nati onalisation in 1946 and the staff members’ accountsMonetary stabilityMonetary stability means stable prices and confidence in the currency. To achieve these, Bank of England should support the government economic objectives which focussed on economic growth and employment.Price stability is an aspect of monetary stability, which means Bank should take actions to ensure stable price and confidence in sterling. The stable prices are defined by the government’s inflation target, which the Bank seeks to mee t through the decisions taken by the Monetary Policy Committee.Market division is a responsibility of Bank to implement the monetary policy decisions which taken by Monetary Policy Committee through take actions in the sterling and foreign exchange marketQuantitative easing is an unconventional form of monetary policy, it means effectively creates new money into the economy through buying financial assets, rather than printing new notes directly. Aim of this process is to increase private sector spending in the economy Financial stabilityThere are five main activities to achieve financial stability.[First is through the work of Financial Policy Committee]. There are two types of policy could be used to support its work, directions and recommendations. Directions means there are valid instructions to the Prudential Regulation Authority and Financial Conduct Authority as example to make financial institutions raise or lower the capitalization in their balance sheet. Recommendations means the requests that can be made to anybody requesting a change in legislation to support their activities. The institutions that are required have the right to opt not to do so, but they should explain the reasons for that.[Second is the Bank’s financial operation], acting as lender of last resort are included. But today the phrase of ‘lender of last resort’ is replace by word ’liquidity insurance’. That is the Bank of England Cash Ratio Deposit requirement, which means all organisations operate as a bank in the UK are required an account in the Bank of England.[Third is the regulation of the financial institutions by the Prudential Regulatory Authority.] The PRA is a part of England and it has responsibility to supervise banks, to build societies and credit unions, insurers and major investment firms.[Fourth is oversight of the payment, clearing and settlement processes in the UK.] The two main interbank systems are CHAPS and CERST, respectively. CHAPS is the same day electronic funds transfer system for high value or wholesale market payments in the UK. CREST is an all-encompassing communications system for UK securities transactions, and it also includes a settlement function.[Fifth is managing resolutions.] That means in terms of the failing institution, Bank will apply the published framework to manage the document of the problem.The role of the Merchant (investment) bank.There are four main roles of a merchant bank, including [new issues, setting up mezzanine finance arrangements, providing capitals through acceptance credit facilities and the treasury services].Merchant take actions as a bridge that links companies that wish to raise capitals through issuing shares to the public with those clients who want to make a large investment. As well as underwriting the issue, merchant bank will help with inscribing of the companies. Based on their understanding of the current situation of market and companies, Bank also will give suggestions to the company as to the timing for new issue.Mezzanine finance is a hybrid of debt and equity financing that is often used to finance the expansion of existing companies. Merchant bank will focus on the arrangement about the issue of the debt capital, and sometimes it might also provide the mezzanine finance.An acceptance credit is a type of letter of credit, which is a facility that allows a client of the merchant bank to issue a bill of exchange, drawn on the merchant bank to achieve the bill’s value as its pre-arranged one. The merchant bank accepts the bill and then the drawer can arrange to discount the bill either at the merchant bank or another bank so that they could receive the funds right now.In term of multinational companies, the Treasury services have become important. This service is provided to companies whose future cash management strategy has been agreed with the merchant bank. Bank will monitor all the real time information about the receipts and payments on company accounts as well as the global exchange rates and interest rates, and then take actions immediately based on the agreed strategy to maximise the benefits for the multinational company.2 The stock ExchangeThe stock exchange is a financial intermediary who provides a means to government, industry and investors so that the saving of personal and institutional investors can meet those who need capitals.It has four main functions: 1. It provides a market where ensures investors could buy or sell securities easily and quickly. 2. The UK stock systems help with the fairness of price at which a deal is done. 3. The ready secondary market makes it easier for bodies who want to raise capital to buy or sell stock quickly. 4. It allows the short-terms saving from pooling of investors to reach the companies who have long-term requirements. (The companies can raise capital at once on the first market, if there is no chance to do so, the investment can be happened on the secondary market.)The existence of regulation in the market is considered to be strength and a significant feature of the stock exchange. In this connection, the Financial Conduct Authority who applies strict conduct on business rules for all engaged in activities relating to dealing with securities supports The Stock Exchange a lot. And it is the regulation is carried out by the market that appealing more overseas investors invest in British.3.The ways company can enter the marketIntroduction: this method is suitable for companies whose aim is not to raise capital in the market. To do this the 25% of the company shares should in the public hands and the company’s aims is to help with the future marketability of their shares and increasing the visibility of the company to potential investors.Placing: this method is suitable the company who target particular institutional investors and is a most common method of listing at present. The merchant bank will advise the company arrange for the shares which have been transferred to public ownership to be placed with other institutions. The institutions will usually pay a discounted price than the shares would have been achieved on the market. Especially the small companies are advised to use this method to enter the market, because of the less cost and the higher control rights.Initial public offering: this method involves a wider offering to public and private investors, which is advised in the financial press and set up a closing date. Though offerings can be made by tender auctions, typically now the price is fixed before adverting. The bank leading as advisor will have underwritten the sale, guaranteeing that all the shares will be sled as they will take up any shares not sold.4.LIBOR ( London interbank offered rate)It is a benchmark rate that some of the world’s leading banks charge each other for short-term loans. LIBOR is administered by the ICE Benchmark Administration.1. LIBOE is an indication of the average daily rate at which contributor banks were able to borrow loans on an unsecured basis from other banks in the London interbank market. The data received from between 11 and18 contributor banks is the basis for calculation of the rate.2. Before 11.am London time contributor banks will be asked question as follow:‘At what rate could you borrow funds, were you to do so, by asking for and then accepting interbank offers in a reasonable market size?’3. LIBOR is based on the lowest rate the banks perceive they would be able to do trades at.4. LIBOR is based on major five currencies: Sterling, the US Dollar, the Euro, the Swiss Franc and the Japanese Yen.5. The LIBOR serves seven time periods which range from overnight to one year. Therefore there are 35 LIBOR rates in fact, rather than stands for a single rate.Derivatives markets5.FutureIt is a legally binding obligation to buy or sell a given quantity of a specified asset at a fixed price on a fixed future date. The assets can be financial or a range of products. Financial one including Foreign Exchange Future and the products can be cotton, copper, crude oil, etc. For example selling 1500 shares in Royal Bank of Scotland on 23 June 2018 at 82p each, it could be a future, i.e. whether the price of the shares over or below 82p on 23 June 2018, the future should be exercised at 82p each. That means if at that day the price has risen to 85p, the investor who hold the future will have lost out, vice versa. To reduce this risk, before the agreed date investor could sell the future to those who believe the share’s price will fall.Option It is a right to buy or sell a given quantity of an individual security at a fixed price and this option can be exercised at any time.A call option means the right for buyer to buy a share at a predetermined price up to a specified date, in return for paying a premium. And investor will buy the call option if he expected the market price of the share to riseA put option means the right to sell a share at a predetermined price up to a specified date, in return for paying a premium. Investors will buy this if he expected the share market price to fall.The seller of the option has to honour the commitment they wrote when the holder of the option exercises it, though the price is not advantageous for themThe buyer of the option will exercised the option when it is to their advantage, if not they will let it expire.。
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