StudentShare solutions
Triangle menu

Anetial Market - Essay Example

Not dowloaded yet

Extract of sample
Anetial Market

Inflation is a measure of changes in prices over a specified period and the objective of the monetary policy is to set the interest rate so that inflation can be brought back to target within a reasonable duration.
Bank rate is therefore an essential tool used by the Bank of England to control the inflation rate. When Bank believes inflation is beginning to rise, it raises interest rates to cool the economy and vice versa.
However this formula has many exceptions as proved by the recent rate cuts by the Bank of England. Although factory gate inflation (based on prices of good leaving factory) reached a 16 year high in December 2007 influenced by rising oil and food prices and CPI stood at 2.1 %, the Bank still went ahead with rate cut. It is interesting to understand why.
Although bank rate is used as a tool to control inflation, it is first important to understand that there are different ways of measuring inflation. The Consumer Prices Index (CPI) and Retail Prices Index (RPI) are used in UK to measure inflation and usually have separate values. This is because of the difference in goods and services they cover and the method of calculation.
The Government inflation target, which is currently 2%, is based on CPI. ...
aper the most important difference that needs to be considered is that CPI does not include certain housing costs, such as mortgage interest payments.

The reasons for the rate cut was not a isolated decision by the Bank of England but was influenced by the crisis in the global financial market as a result of what has now come to be known as subprime mortgage crisis. Subprime is the general term used to refer to lending to borrowers who do not normally qualify for standard market rates for various reasons such bad credit history or lack of stable income. Obviously these borrowers are a greater risk to the financial institutions.

For many years, Cleveland in America was the major market for the sub-prime lenders where the brokers informed the residents that they could obtain cash by refinancing their homes, "but often neglected to properly explain that the new sub-prime mortgages would reset after 2 years at double the interest rate" (BBC, 2007). As the home owners were subsequently unable to afford repayments, this resulted in a wave of repossessions. As the sub-prime lending had spread across America, the same story has been repeated.

As many borrowers defaulted on payments, the financial institutions felt the credit crunch which reflected on other developed economies such as UK. The lenders in UK tightened their loan conditions in response to the US financial slump, especially in the sub prime market which has influenced the price of property in UK. The profitability of the financial services sector, which has been a key driver of UK economic growth in recent years, has also been affected.

As the housing demand in UK showed a decline, this resulted in a general fear of economic slowdown. At this stage, the Bank of England faced a dilemma between a rise ...Show more

Summary

The Bank of England, sometimes known as the 'Old Lady' of Threadneedle Street, performs all the function of a central bank including maintaining of monetary stability. Maintaining stable prices are an important requirement of the monetary stability and it is the responsibility of the Bank to decide on the level of short-term interest rates necessary to meet the Government's inflation target which is currently at 2%.
Author : kesslerlucy
Anetial Market essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Anetial Market"
with a personal 20% discount.
Grab the best paper

Related Essays

Market structure
These describe the main aspects of markets such as the products sold, the number of firms, and ease of entry and exit. The different market structures include: perfect competition, monopoly, monopolistic competition, and oligopoly. A perfectly competitive market is characterized by various features which in most cases are not found in a real world but are used as benchmarks for other markets.
7 pages (1750 words) Essay
Market Segmentation
[Professor’s Name] [Writer’s Name] [Course Title] [Date] Market Segmentation The market consists of different types of consumes that have a variety of needs and various types of products (Kotler, pp.44). The market further divides itself into different types of consumers, further divided into subgroups and segments.
5 pages (1250 words) Essay
Market
Perhaps his success can partly be attributed to the cult of personality around him and partly because of his wife. His wife Eva Duarte rose from being a singer into becoming Peron’s mistress while serving as a military officer. Peron married her before rising to presidency.
5 pages (1250 words) Essay
Market
The company has been especially exceptional in the production of smart phones. Smart phones from Samsung Company include Samsung galaxy s3, s2 and Samsung note. The latest smart phone that has captured the attention of many customers is Samsung Galaxy S4.
5 pages (1250 words) Essay
Market
Since the demand for money rises above money supply the interest rate rises. This results in increases savings and decreased private investment. Since people can either save or consume their income, in order to increase savings the consumption will decrease.
11 pages (2750 words) Essay
Mature market
The machinery growth rate is only a small 5% per year. This is really very slow. But the construction industry is tied up to the economy (Samuelson,1973). The construction machinery industry included such products as power cranes, dragline, and excavators.
5 pages (1250 words) Essay
Market Challengers, Market Followers and Market Nichers
Some advertisers indicate the competition in their advertising through symbols while others generate this psychology of comparison by presenting features that are comparable to the popular features of the competition.
3 pages (750 words) Essay
Market Research
(Spaeth, 2000) However if the answer is no (that they do not think a skin care product would be any good for them), then there is a definitive
2 pages (500 words) Essay
Market Failure
The idea of market failure comes into the picture when an individual is motivated by personal interests which may result in inefficiencies. There is possibility of improvement from the standpoint of the society. The idea
2 pages (500 words) Essay
Market Structures
In economics, market structure is the feature of a particular market in the economy. The features of a market can be organizational, competitive, or any other characteristics that define the commodity market. The yardstick that economists use in defining market structures is the pricing models and the nature of competition in a particular market.
2 pages (500 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation