StudentShare solutions
Triangle menu

Money & Banking - Essay Example

Not dowloaded yet

Extract of sample
Money & Banking

The Fed comes out with the monetary policy in order to ensure a certain key objectives like, delivering price stability with a low inflation level coupled with an objective to support the Government's economic objectives of growth and employment. To understand how the Fed monitors price related regulations to keep a check on inflation, we may consider a small example of the regulation of house and property prices. To take any decisions related to interest rates keeping in mind the ongoing inflation rate, the Fed must be thorough with the booming property prices and must take steps to ensure that the prices are not artificial.
Government intervenes through its central bank to regulate the prices of many commodities, similarly it also regulates the prices of houses like any other important commodity. Fed has the responsibility to keep a check on asset prices including the prices of houses. There can be a number of reasons why the prices of houses may shoot up, like the simple rule of demand and supply has a definite impact. (Demand and Supply for Housing).
Other reasons behind a change in property prices can be Mortgages. A mortgage is the money borrowed to buy a house, as for most people buying a house is not easy. Over the years mortgage market has picked up greatly and the current scenario is totally different from the one that existed in the beginning. Mortgages were supplied only by the building societies. Building societies were non-profit institutions and encouraged only the members for the grant of loans, so the people who were members and had contributed to an extent for a considerable period of time got loans easily and account with building societies became the only means to get mortgages. Soon these societies had to compete with the banks and other financial institutions specialized in granting housing loans. This price war resulted in a greater demand for owner occupied houses and consequently the demand for houses grew stronger, resulting in a substantial increase in price. (The UK Housing Market - Factors Influencing the Housing Market: Mortgages)
Besides the above-mentioned factor of mortgages there are other factors like stamp duty and planning that affect the market for housing. Mortgage interest relief at source (MIRAS) was a tax concession to owning a house. It reduced the house owner's liability to income tax as the money spent on the interest on mortgage was considered to be tax-free. This made borrowings cheaper and as a result there was a huge demand for housing and the prices shot up. With the introduction of MIRAS in 1990 many people were exempted from stamp duty. (The UK Housing Market - Factors Influencing the Housing Market: Stamp Duty and Planning)
The central bank sets a fixed interest rate at which it lends money to financial institutions and depending on this interest rate, individual banks and other financial institutions set up their own interest rates, which apply to the whole economy. This step is of indispensable importance to the economy, as this is very widely used to contain inflation. The only purpose behind such a step is just to contain undue inflationary levels prevailing in an economy. The point to be noted here is that, ...Show more

Summary

The purpose of this study is to bring to light the mechanism of an economy and banking system. The study focuses on subprime crisis that has hit the US in the last two years. The study throws some light on the adverse effects of the crisis on the US as well as other economies of the world…
Author : rahul01
Money & Banking essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Money & Banking"
with a personal 20% discount.
Grab the best paper

Related Essays

The Economics of Money, Banking, and Financial Markets
To ensure the success of companies in other countries, it is vital to undertake risk analysis before establishing the venture. Risk analysis is a significant process that entails identifying and assessing aspects that may interfere with the progress of a company thus making it difficult to achieve the objectives set by the management.
10 pages (2500 words) Essay
MONEY AND BANKING
Trade deficit in a country is an economic condition, which results when a country imports more goods than it exports. The deficit is equivalent to the goods imported less the value of the exported goods, and it is given in terms of the currency of the involved country. Measuring the trade deficits is difficult and it involves measuring investment flow for different accounts. These include the financial and the current accounts, which are totalled to get the balance of payments.
4 pages (1000 words) Essay
Money & Banking Foreign Trade
Similarly, modern people largely depend on banking services including but not limited to check settlement, money transfer, online purchases, and payment of bills and subscriptions. With the emergence of globalization, countries worldwide liberalized their cross border trade laws which in turn promoted the concept of foreign trade.
17 pages (4250 words) Essay
Money, Banking, and Financial Markets
Practically the same concerns in the Federal Reserve during 1935 promoted an immense rise in reserve requirements for 1936. This led to a sharp recession in the next two years (Cecchetti 34). Hopefully, the monetary policy makers and economists have learned from the similar experience, or the repletion of the untimely tightening may be caused by the misapprehension duty of the bank reserves in the current financial system.
9 pages (2250 words) Essay
Money,banking and the federal reserve system
The United States of America uses the monetary unit of a Dollar. The United States Treasury prints money bills for distribution to the banks in form of bank reserves. The banking system provides the platform for reserving money for distribution to the public.
7 pages (1750 words) Essay
Money,Banking&Finance
Thus, for the determination of the value of a bond for a period of time, the rate of interest is a useful metric that would help in determination of the present value and the future value of the bond. Interest rate is generally determined from the market rates which would be captured in the valuation of a long term debt instrument such as a bond.
7 pages (1750 words) Essay
Money, Banking & Finance Essay
In other words, the instinct of the Fisher theory of interest rates will be proved. This will be done by researching various evidences both on theoretical aspect as well as practical aspects. Fisher has his own way of
8 pages (2000 words) Essay
MONEY AND BANKING ASSIGNMENT
techniques differ in countries and the strategy to compel market towards a rate target is through lending or borrowing money in quantities that is somehow unlimited. This is usually done up to the level where the set target for the target market is accomplished. They accomplish
8 pages (2000 words) Essay
Issues in Money, Banking & Finance
veloped economies as part of normal re-establishment of equilibrium, Japan has found it hard to recover from such a decline for many reasons, including bad debt burdens and the daunting task of restructuring its economy. This inability to reverse the decline in price levels, in
8 pages (2000 words) Essay
Money, Banking, and Financial Markets
The article gives its opinion about the global monetary system by discussing how America is likely to be at the center of this global financial system.
9 pages (2250 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation