2. As a central agency the FED can seriously affect the manner in which it can affect the banking system. Firstly, it monitors the sale of different government instruments. In this manner it affects the rate of interest in the market and ensures the growth in credit and money supply.
Secondly, it also fixes the manner in which these instruments are purchased from the public and corporations, thereby affecting the interest rate again. Thirdly, the FED can monitor the effectively monitor the amount of lending, thereby influencing the price of the securities and bank stock.
3. Very simply put the reserve requirements are the amount of vault cash and deposits that the banks are stipulated to hold with themselves. Less money in the reserves would imply more money available - the bank will have more loan able funds at its disposal, thereby having favorable implications on the cost of transactions and the bargaining capacity of these institutions with other bodies. The changes in the reserve requirements are made rather infrequently by the government, it may even be the fact that this measure has been employed only once or twice in a decade (Jhonson 2005).
The discount rate is the price the central bank, other financial banks pays while engaging themselves in money relat
a. Controlling interest rates: This hints towards the role that the FED plays as a monitoring agency. Lower interest rates will serve as an incentive to businesses to invest into capacity expansion, thereby impacting the GDP in the long run.
b. Controlling inflation: Inflation is one of the major issues which confront the FED…
Monetary policy also involves controlling the changes in the value of exchange rate. This is because currency fluctuations affect the macroeconomic activity in a country. According to the international monetary fund, the bank of England appears to be nimble when it comes to easing the monetary policy in the United Kingdom.
The semi-pegged currency system dictates that all governments forming the European Union keep their currencies within a specified range. It stipulates that no currency of any given European Union member should fluctuate beyond 2.25 percent from the agreed and set central limit.
Financial markets are further divided into money markets and capital markets. Money markets deal in securities with a maturity date within one year. Capital markets mature in longer time frames. Bonds are debts with a maturity date, the investor loaned the business money. A stock has no maturity date; the investor owns a portion of the business.
One of these important functions includes the regulation of money supply in the country. This is dealt by the monetary policy of that particular country that has its limitations and demand serious attention from not only the policy makers but also the public who would have to follow these policies.
economy. There were several strategies introduced by policy makers to combat such occurrences. After all, no economy is safe from depression and market forces continue to follow cyclical trends. The discussion below will tackle some of the important aspects related to depression.
The FED also keeps business running in the nation through supply of currency, coins, and services payments such as check clearing and electronic funds transfer (Solow & Taylor, 2008).The paper will look at the U.S Federal Reserves monetary policy in detail addressing various issues.
In particular, the paper focuses on how the FED used three key tools of monetary policies during the time of economic crisis. These tools include open market operations, setting the reserve requirements and discount rate. As it is shown in the paper, the monetary policy of the Fed proved to be effective in correcting a financial crisis,
Monetary currency involves impaction of the government on value of currency by involving a vital bank such as the Federal Reserve Board in order to gain control over value of currency and cut down on inflation. This way, the bureau changes the way
According to the discussion, Fiscal and Monetary Policy, the object of monetary policy is the stabilization of macroeconomic fundamentals, such as those relating to stable prices, stable growth rates for the economy, and the levels of employment and unemployment, with the ideal being full employment.
financial assets from commercial banks and other private institutions therefore increasing the prices of the same financial assets while decreasing their yield and increasing the monetary base at the same time. This is different from the typical policies of buying or selling
11 pages (2750 words)Research Paper
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