They control short-term interest rates, using key rates such as lombard, discount, minimum lending etc
They are the largest players in the money markets
|Lombard||Emergency lending rate for eligible bills, bills of exchange|
|Interbank||This is the rate charged when banks lend to each other|
|Discount||The rate at which a bank will discount eligible bills of exchange for other banks|
Central banks control short-term interest rates using key rates such as lombard, discount, minimum lending and similar terms. In the UK the discount houses play a key role.
Central Banks - Typically an economy will have a central bank (eg Federal Reserve in US, Bank of England in UK)
Activities include: supervision of the banking system, advising the government of monetary policy, issue of banknotes, acting as banker to the other banks, acting as banker to the government, raising money for the government, controlling the nation's currency reserves, acting as "lender of last resort", liason with other international bodies
The governments bank balance is going up; the banks balance at the central bank are going down.
The central bank will relend the money to keep everything on an even basis and to avoid wide fluctuations in money market rates. The rate set for the central bank's help gives it control over the interest rates. When interest rates change, it is because the central bank changes the rate to help other banks ??
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