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External environment - Role of the Bank of EnglandWorksheet - Interest rates - how interesting for business?The aim of this worksheet is to look at the work of the Bank of England and the impact of the changes in interest rates that they make. The worksheet can be printed out and answered on paper. 1. Use the glossary to find a definition of monetary policy. Do not copy and paste the definition - try to express it in your own words. Note this down below: 2.Who operates monetary policy in the UK? 3. a) How many members are there of the Monetary Policy Committee (MPC)? b) How many of these are internal members and how many are external? 4. Explain why a travel company specialising in safari holidays to Southern Africa might be concerned about a potential rise in interest rates. Assess at least three reasons why a business may be concerned about an increase in interest rates. You may find the theory section helpful for this. 5. Why might a food retailer such as Tesco, Sainsbury, Asda or Safeway have different concerns about a possible rise in interest rates compared to a restaurant? 6. Do a search in the In The News section to find recent examples of changes in monetary policy. N.B. You may like to try search terms like:
You may get the best results when searching using more than one word if you check the 'Match your phrase exactly?' box under the search button. Note down the examples below: a) b) c) d) e) 7. Delete the words in bold in the paragraph below as necessary so that it describes the operation of monetary policy accurately. Monetary policy in the UK is operated by the Monetary Policy Committee of the Bank of England / Treasury. The committee has eight / nine / ten members and of these three / four / five are internal from the Bank of England / Treasury and the other three / four / five are external and are appointed by the Governor of the Bank of England / Chancellor. The committee meet bi-monthly / monthly / twice monthly to set the level of interest rates. They are aiming to meet an inflation target of 2% / 2.5% / 3% and the rate of inflation is allowed to fluctuate either side of this target by an amount of 1% / 1.5% / 2%. If they feel that inflation is likely to rise then they will increase / decrease interest rates, but if they feel that inflation is likely to fall then they may increase / decrease the interest rate. 8. Why might business organisations like the Confederation of British Industry (CBI) often lobby the MPC to reduce interest rates? You may find the theory section helpful for this. 9. Assess the impact of a rise in interest rates of ½% on the following businesses:
N.B. The command word here is 'Assess' - remember to use relevant concepts and terminology in your answers and to justify your remarks. |
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