Breaking a Peg: September 1992
What Defending Actually Costs
The Bank of England had two weapons. Post them both and you can see why neither could win.
10 min90 XP available4 challenges
A fund is selling sterling. To stop the rate falling through DM 2.7780, the Bank of England buys £1bn, paying with D-marks out of its foreign exchange reserves.
Entries to post
0 of 4 entries placed
Pick an entry, then choose whose sheet it lands on and which side. Every sheet must balance.
Bank of England
Committed to the floor
Central bankAssets
What it owns
- Foreign exchange reserves£25B
- Domestic assets£15B
Liabilities
What it owes
- Sterling reserves of banks£12B
- Banknotes in circulation£28B
The Selling Fund
On the other side of every intervention
Shadow bankAssets
What it owns
- Sterling deposits£10B
- D-mark deposits£2B
Liabilities + equity
What it owes + what’s truly its own
- Sterling borrowings£10B
Equity
- Investors’ capital£2B
Answer to continue.