Money and capital market - Essay Example

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Money and capital market

This form of policy gives the bank an opportunity to avail massive liquidity. This policy is very effective in addressing frozen liquidities that are experienced across the globe especially in the United States of America where money transfer between banks has been witnessed during a financial crisis. This is a step to mitigate the effects liquidity shortage could have as far as solvency problems is concerned. Liquidity policy response is also beneficial in many ways. It does not only offer solutions to short term money problems in market rates. It also helps to ease pressures at the markets as far as funding is concerned. This is a step towards ensuring that funds are supplied for long term benefits as well. Further, central banks help by enlarging the eligibility base as far collateral lending is concerned. In exceptional cases, central banks increase their lending bases to non depository financial institutions and banks as well (Stein, 2011, p. 4). Finally, central bank uses the liquidity response policy to establish felicities for lending to enhance the market repose between banks. Liquidity response policies to the economic crisis have been seen to be essential in nurturing good communications among different countries of the world. ...Show more

Summary

In conclusion, the economy of the world is slowly recovering from a deep financial crisis but with a wide range of uncertainties. Policies regarded the macro economy should be co ordinate so that sustained growth that is balanced is achieved (Monetary policy report, 2011. P.5). this will encourage more investment among investors…
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