VI. Meanings.

Read the passage below and explain the meanings of the words and phrases, which have been underlined.

The collaborative development with the Association for Payment Clearing Services (APACS) of a Real-Time Gross Settlement system (RTGS) for sterling payments, an evolution from the previous CHAPS system, was referred to in last year's report. This work came to fruition in April 1996 when the new arrangements were inaugurated. RTGS involves the final settlement in central bank funds of each payment passing through CHAPS at the time it is made, rather than on a net basis at the end of each day. At the end of November 1996, a record 127,000 payments passed through CHAPS on a single day.

The project to develop RTGS was one of a series of initiatives to reduce systemic risks in the operation of the payment and settlement systems in the United Kingdom. In the first half of 1996, the Division took part in a strategic-review, carried out by the Bank, to identify how best to progress these initiatives.Some key elements of strategy to emerge from this review, upon which work has continued, were as follows:-

First, to complete the work on upgrading the Central Gilts Office (CGO) gilt settlement system. This system was originally implemented in 1986, at the time of Big Bang, and although it has worked satisfactorily for ten years it is in need of enhancement. Following a period of consultation with the market, it was announced, in 1995, that the system would be upgraded using the software designed for CREST, the equity settlement system.

VII. Complete the sentences using your own words:

1. The first objective of any central bank is ……

2. Monetary policy operates in the UK mainly through …..

3. Setting monetary policy - deciding on the level of interest rates necessary to meet the inflation target - ……

4. As part of the Government's move to increase public scrutiny of policy making, ………

5. The minutes, which include the Governor's advice, are now …….

6. Although the decision on whether, and by how much, to change interest rates is the Chancellor's, ……..

7. When more money flows from the banks to the government than vice versa, the banks' holdings of liquid assets are run down and ……….

8. Interest rates affect ………….

9. The reserves are held in a government account called the Exchange Equalization Account, which was set up in ………….

10. Short-term interest rates and foreign exchange market intervention are ……

UNIT II

THE UK MONEY AND BANKING MARKETS

TEXT A

THE UK BANKING MARKET

The banking and money markets in the UK, like their respective markets in the United States, are not two distinctive mutually exclusive markets. Rather, they overlap each other substantially. We define the banking market in terms of major market participants — banks in this case — whereas we define the money market in terms of financial instruments traded. Since banks are also important dealers of money market instruments, it is natural that the two markets overlap.

First we examine the characteristics of the British banking market, focusing our attention on the type of banks and their major activities. We will also point out the mode of operation should it be significantly different from those in other markets.

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