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Complexities of the U.S. Financial System - Essay Example
Finance & Accounting
Pages 3 (753 words)
Complexities of the U.S. Financial System Answer 1 The US financial markets affect the economy at large as well as the individuals living in the economy. In the securities market equities, commodities and other instruments are traded and the amount of demand existing in the market and the price levels existing affect the economy and the businesses…
Since most of the hedge funds and the pension funds make their spending on the stocks, they would suffer a loss due to the fall in the stock markets. This will lead to a reduction in the confidence levels of the consumers. Thus the economy might move towards a situation of recession and lack in the aggregate demand from the individual consumers. This in turn would lead to a fall in the production of the firms and businesses. Since a lot of foreign investors spend money on the US markets, it will affect the global markets as well. The amount of both domestic and foreign investment will suffer a decline in the economy. Thus the decline in the stock markets would force the consumers to make their investments mostly in the bond markets. Answer 2 The US Federal Reserve is the apex financial institution that acts as the Central Bank of the country and is instrumental in the formulation and implementation of the monetary policy of the United States. The Board and the Chairman of the Federal Reserve are the chief executives who are appointed by the President of the United States to take the responsibility of the monetary policy of the state. The actions and the speeches of the Chairman and the Board affect the financial markets of the country. ...
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