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Essay / Research Paper Abstract
This 5 page paper considers how liquidity is maintained. The paper considers the role of the lender of last resort, the control of the money supply and how this supports the wholesale banking activities and credit transformation. The bibliography cites 5 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEliquid.rtf
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Unformatted sample text from the term paper:
current position of the financial frameworks though regulation and general financial structures. The liquidity required in the UK is protected and ensured by the presence of the Bank of England,
the central bank that has the role of lender of the last resort. To understand how this is ensured and protected in the UK the liquidity problem need to be
explained. To begin with any liquidity issue will centre on a reserve asset. There are three main types of assets that can be used; a pure commodity, such as gold,
a paper backed commodity with the commitment form the government to buy it back for a fixed price, or a fiat paper standard, which has no real backing. The UK
system is based on government promises with bank notes containing the words "I promise to pay the bearer on demand the sum of". The key factor is that the asset
need to increase in line with the demand that is determined by the economic conditions. The next issue of liquidly concerns the need for a lender of last resort.
In a financial crises there needs to be access to the system of short terms funds. There is the need for borrowers to have resort to a source of
borrowing to prevent financial failure that may then spread though the entire financial system (Howells and Bain, 1998). This needs to be achieved without exposure or risk of moral hazard;
the banks taking unnecessary risks knowing that the borrower (usually a bank) will be bailed out by the lender of last resort to save the system. In the UK
the financial system may be seen as hinged upon the role of the Bank of England as the lender of last report. This is a term that may easily be
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