1. Question?
Discussion points pg 89

2. Uncertainty
Businesses dislike uncertainty, it makes planning difficult and can effect investment decisions
This is different to risk, risks arise when changes are expected, the probability of these risks can be calculated with some degree of certainty based on past data
Shocks however are unpredictable and can often have a significant effect on the economy e.g. 9/11, Oil crisis 1973

3. Planning for risk??? Q – How can businesses plan for risk happening??
Tip
How can an importer or exporter plan for exchange rate changes?
How can a shipping company plan for one of their ships sinking?

4. Planning for Risk
Summarise forward markets and role of insurance pg92

5. The role of the Financial Sector
Discussion point pg 94

6. The role of the financial sector
Credit creation
Using money from savings and current accounts to lend to individuals and businesses
Must ensure there are robust credit checks in place
To facilitate exchange – money is the medium of exchange
To provide forward currency markets
To provide a market for equities (shares in PLCs)

7. The role of the Central Bank
MPC sets in base rate of interest
To implement monetary policy to manage inflation
To regulate the banking industry
Banker to the banks – lender of last resort

8. The global financial crisis
Discussion points pg 104

9. Contributing factors
Sub-prime mortgages – risky mortgages to people with poor credit history
Moral hazard – banks acting in self interest and knowing others will have to deal with the problem if it goes wrong
Collapse of lending to businesses
Speculation of potential bank failure

10. Banking regulation Ultimately the banks are regulated by the BofE
Also have the Financial Conduct Authority which monitors the integrity for the sector
Not part of the BofE but reports directly to the treasury
And the Prudential Regulation Authority which supervises both retail and investment banks
Is a part of the BofE

11. Importance of financial sector
Finance is the blood of business
Without finance businesses cannot grow
Without finance households cannot borrow
A weak financial sector will also of course lead to a reduction in confidence
All of which will lead to falling output and demand
So although regulation is costly it is essential to maintain a healthy financial sector