...change in reserve requirements, and changes in the discount rate. Central bank can expand the money supply by the following; the discount rate is being reduced, Reduction in reserves requirements and bonds being purchased. However, Central bank can contract the money supply by: Discount rate being increased, Increasing reserves requirements, and selling of bonds. Central Banks buy currency because it affects the supply of money. Many central banks may require that most foreign exchange receipts (generally from exports) be exchanged for the local currency. The bank is marked-based the local currency being purchased by the rate being used. Money supply is increased by the central bank when it purchases the foreign currency by selling the local currency. The central bank may reduce the money supply by many reasons which include selling bonds or foreign exchange interventions. What did the central banks do to stabilize the financial systems in 2007&2009? Monetary policy had been eased, with policy interest rates approaching zero in many countries and quantitative easing being attempted by a number of central banks. The Federal Reserve and other central banks developed new facilities to assist stabilize the credit markets. Some major countries recognize the need to coordinate their debt issuance so as not to de-stabilize the financial markets. In an effort to stabilize the financial system how much money, in U.S. dollar equivalent and as a percentage of the country's GDP, did the European...
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...The Federal Reserve Jermaine C. Taylor ECO320 Money & Banking March 2, 2014 Prof. Diana Bonina, Ph.D. Strayer University The Federal Reserve established on December 23, 1913 when President Woodrow Wilson signed the Federal Reserve Act into law. Although started in 1913, actual operations of the Reserve began in 1914. In order to provide the country with a safer financial system, Congress created The Federal Reserve System as the central bank of the United States. Today, the Federal Reserve’s responsibility falls into four general areas: conducting the nation’s monetary policy; supervising, regulating and other soundness of the country’s financial system; maintaining the stability of the financial system and providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions. The Federal Reserve can use the following tools to influence the money supply: Open Market Operations, The Required-Reserve Ratio and Discount Rate. The Federal Reserve uses Open Market Operations as its primary tool to influence the supply of bank reserves. This tool consists of Federal Reserve purchases and sales of financial instruments, usually securities issued by the U.S. Treasury, Federal agencies and government-sponsored enterprises. Using Open Market Operations, Federal Reserve can affect the money supply by buying or selling the U.S. government securities. When the Federal Reserve purchases a government security from the public...
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...|ELECTRONIC ASSIGNMENT COVERSHEET |[pic] | |Student Number |32477916 | |Surname |Helliwell | |Given name |James Maxwell | |Email |Jhel8204@uni.sydney.edu.au | | | | |Unit Code |BUS290 | |Unit name |International Financial Markets and Institutions | |Enrolment mode |External | |Date |10/4/2014 | |Assignment number |1 ...
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...is to help the economy achieve prime stability, full employment, and economic growth. The cause and effect chain is as follows; policy decisions affect commercial bank reserves, those changes in reserves affect the money supply, and changes in money supply alter the interest rates, and those interest rate changes affect investments, changes in investments affect aggregate demand and changes to aggregate demand affect the equilibrium real GDP ad the price level. Major strengths in monetary policy are the flexibility and political acceptability. Monetary policy is easier to undertake than fiscal policy because of monetary policy’s strengths, its speed and flexibility and an isolation from political pressure. Monetary policy can be quickly altered when necessary. 5 Suppose that you are member of the Board of Governors of the Federal Reserve System. The economy is experiencing a sharp and prolonged inflationary trend. What changes in a reserve ratio, the discount rate, and open market operations would you recommend? Explain in each case how the change you advocate would affect commercial bank reserves, the money supply, interest rates and aggregate demand. I would sell bonds to increase the reserve ratio and increase the discount rate. This would give banks less in excess reserves, decreasing money supply. This would the, cause interest rates to rise and decrease aggregate demand and inflation would then decrease. 7 Distinguish between the Federal Funds rate and...
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...LaToya Tucker Finance 350 Assignment 1 Professor Togbenou December 17, 2012 1. Explore one (1) financial market and the types of transactions supported by it in the U.S. and global economies. Determine how valuable these transactions are to the overall U.S. and the global economies. In finance a bond is a debt security issued by corporations and government agencies to assist in their daily operations and functions. When the corporation or agency issues a bond to the bond holder, they are actually issuing a debt and promise to repay the original bond price plus interest in most cases. The interest paid on this debt is considered the coupon payment and is usually paid semi-annually or annually. Depending on the type of bond, the coupon payment can be a fixed rate or it can change over the course of maturity. Bonds have maturities that range from one year to over fifty years. A bondholder might not want to hold the bond until the agreed upon date so they sell the bond in a secondary market in order to have access to their money again. A bond can be a municipal, a treasury, a junk, a corporate or an I-bond. There are also bonds considered convertible bonds that can be transferred into stock by the bondholder. “Bonds are an important part of the economy and contribute to two-thirds of the average daily trade in U.S. market (Chakrvarty)”. Bonds are considered valuable because they are a means to wealth from an investor’s standpoint and they make business operations more...
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...Is the monetary policy conducted by the American Federal Reserve really efficient? Does monetary policy conducted by the American Federal Reserve is really efficient? Introduction Miller et. Al.2013: Ch. 6: the chapter of this book is a set of articles that all point fingers at monetary policy’s weaknesses and interrogate Fed’s actions’ efficiency. All of them have pretty much a Keynesian point of view about the Fed’s policies failure, so they do not call into questions the existence of the Fed itself and its monetary policy but they rather globally accuse a lack of regulation and claim for an even more important intervention from the government. But over the last decades, we have experienced several Fed’s interventions and many expansionary monetary policies in order to try to counter the negative effects of the crises and then, to get the Economy back on track. However, the recovery is quite slow, the unemployment rate still quite high and a new crisis regularly burst. Thus, it seems legitimate to wonder about the effectiveness of the Fed policy. Does it have a real impact? And more important, does it have a real positive impact? First, we’ll define the monetary policy, its tools and its goals. Then, we’ll study the Keynesian theory of money and the important role it can play in the Economy and in its recovery - or could, without “interferences” strong Liberal thoughts might cause. Finally, we’ll consider arguments that claim monetary policy has become inefficient...
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...called the monetary policy which aims to control money supply and interest rate to control the amount of money circulating in an economy. Countries do this for several reasons: * Reduce inflation: Inflation happens because there are too much money in the economy. Therefore, they can buy their own currency (by selling assets) to reduce the amount of money in the economy => reduced inflation * Reduced current account deficit (surplus): In this case, central banks "buy" the currency so it will be to reduce the current account surplus, thus putting downward pressure to inflation. This is because as there are less money in the economy, the value of the money goes up i.e. its exchange rate relative to other currencies go up, making its export less competitive and imports more competitive, reducing current account surplus. * Stability: Although this is not explicitly said, countries do aim for a stable exchange rate so that investor confidence can be confident enough to invest. This is done by controlling the money supply (as said above.) The central banks efforts to control exchange rates by either buying its own or another nations currency is called the monetary policy. The goal of this is to limit the amount of money circulating in the economy by controlling the money supply and the interest rate. What did the central banks do to stabilize the financial systems in 2007–2009? As the financial crisis unfolded throughout the 2007-2009 time period, the Fed increased...
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...booms and busts of the business cycle. b. the economy would stabilize itself too quickly without government intervention. c. there are significant lags due to the nature of the political process. d. All of the above are correct. ANSWER: a there is no reason for society to suffer through the booms and busts of the business cycle. SECTION: 1 OBJECTIVE: 1 2. The Federal Reserve will tend to tighten monetary policy when a. interest rates are rising too rapidly. b. it thinks the unemployment rate is too high. c. the growth rate of real GDP is quite sluggish. d. it thinks inflation is too high today, or will become too high in the future. ANSWER: d it thinks inflation is too high today, or will become too high in the future. SECTION: 1 OBJECTIVE: 1 3. If the Federal Reserve loosened monetary policy today because it believed a recession was going to hit the economy in about one year, this is an indication that the Fed a. is undertaking an inappropriate monetary policy. b. recognizes the problem of lags. c. recognizes the fact that money is neutral. d. is conducting a procyclical monetary policy. ANSWER: b recognizes the problem of lags. SECTION: 1 OBJECTIVE: 1 4. When economists say that there is a time lag in the effect of monetary policy, they mean that a. it takes time to observe the effects of fiscal policy on the economy. b. the Fed takes awhile to figure out what...
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...The Federal Interest Rate and How it Effects Business Interest is the cost of borrowing money. You pay it in almost every facet of life and business, from taking out a home mortgage, to credit card use, to equipment loans and lines of credit. The rate that you pay or the percentage is not random and is directly correlated to the Federal Reserve Bank’s (The Fed) interest rate. The Fed’s interest rate has an endless effect on how the economy operates and how business is done throughout the world. This effect not only has a direct impact on the stock and bond markets but has an even greater effect on how business operations make decisions and progress in our society. Monetary policy in the United States has been and always will be one of the most important topics in politics that we have as a nation. The effect that inflation has upon society is the greatest threat to wealth management and stability that we face. This interest rate or more specifically, the monetary policy used by the Fed is what drives business and commerce. The effect of the Federal interest rate to not only create opportunity but have the ability to drive industry up or down depending on the amount of money banks have to lend to small businesses and individuals is profound. Every politician will at some point or another, state that “Small Business is what drives the American Economy!” This is not just rhetoric but proven by the amount of jobs and income generated from small business. According to the...
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...2013 The US economy has seen some detrimental changes over the past decade. These changes resulted in unsubstantial unemployment rates, fluctuating interest rates, unstable GDP, and an increase in taxes. The federal government has an obligation to citizens to respond to the changes in the economy that affect each household. Expansionary Fiscal and Monetary Policies are economic policies used by the government to level out the extreme swings in our economy. The development state of US economy has forced the Federal Government to implement changes using their authority in Expansionary Fiscal and Monetary Policies in order to stabilize the economy. President Bush and President Obama Administrations created and implemented a stimulus package in direct response to the 2008 economic crisis. Government expansion is necessary for economic growth. The government should provide a stable environment for economic growth and maintain the stability of currency, enforce and defend property rights and provide the assurance that private citizens and market place transactions are accountable. This is how resources are cycled into our economy. (Amacher;Pate, 2012) Without government spending, the government would not be able to carry out its duties to the US citizens. Government borrowing and spending stimulates the economy and is risky because it cannot be implemented at any time because of legislation. Many of these policies that allow government spending to stimulate the economy have to pass...
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...the committee is expected to make decisions on the continuity of its asset repurchase program and the federal funds rate. Fed Chair Yellen should present the fact that in Q3, the economy has continued to grow at 4% rate. And that unemployment rate has dropped to a low 5.9%. These positive signals indicate a healthy economy moving towards maximum employment and price stability. Chair Yellen should first confirm that the current $5 billion asset repurchase program will end by the end of the year. And second, should present the expected economic progress and determine for how long ZIRP will be maintained. It is also important for Chair Yellen to discuss how the Fed is going to protect the economy from future potential recessions especially by discussing these three points: 1. Progress report on the Dodd-Frank act, how to expedite and simply the rulemaking process. 1. TBTF banks are a risk to financial stability. A plan must be put in place to decrease their size so that failure becomes an acceptable option. 2. The Fed should move towards a data-driven organization. Using the Taylor rule to set its federal funds rate will remove any second guessing. 1. What is the current economic situation and how did we get here? Give your policy recommendation with some detail, including ideas on the timing and details of normalizing policy, including exit tools. The U.S. economy is recovering from the deepest recession since the Great Depression in the 1930s. The financial crisis...
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...floating exchange rate system. However, a disadvantage of freely floating exchange rates is that firms have to manage their exposure to exchange rate risk. Also, floating rates still can often have a significant adverse impact on a country’s unemployment or inflation. 2. Intervention with Euros. Assume that Belgium, one of the European countries that uses the euro as its currency, would prefer that its currency depreciate against the dollar. Can it apply central bank intervention to achieve this objective? Explain. ANSWER: It can not apply intervention on its own because the European Central Bank (ECB) controls the money supply of euros. Belgium is subject to the intervention decisions of the ECB. 3. Direct Intervention. How can a central bank use direct intervention to change the value of a currency? Explain why a central bank may desire to smooth exchange rate movements of its currency. ANSWER: Central banks can use...
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...Is the pace likely to accelerate or decrease over the next decade? Why? Human resources, capital, natural resources, entrepreneurship and technology; Increase because the factors are in high demand. 2. What role does entrepreneurship play in the economy? Who stands to gain from the success of individual entrepreneurs? How do other parties benefit? It inspires new business ventures that support wealth building and future prosperity; A lot people who are unemployed will find jobs that are more flexible and challenging, working for big and small businesses. 3. When did American business begin to concentrate on customer needs? Why? World War II; The reason was more intense competition, which gave consumers more choices. Under those circumstances, meeting customer needs became an imperative for business success. 4. How do nonprofit organizations compare to businesses? What role do nonprofits play in the economy? How do they interact with businesses? Their primary goals are not to make profits like businesses but to improve the quality of others. They have a role in the economy because they do still employ and make revenue like business and spread nationwide. 5. What are the factors of production? How can economies grow when one or more of the factors is weak? Natural Resources, Capital, Human Resources, Entrepreneurship. It appears as though entrepreneurship is the most important with the examples of China and Russia failing while places like Hong Kong and the...
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...Abolish the Reserve For the future of the United States economy, the Federal Reserve needs to be put into congresses hands, audited, and ultimately abolished. Many U.S citizens do not pay attention to the economy. Many citizens just go about life wondering about why they have financial issues; people go straight to the president of the United States to blame. People never think of the big picture, yes the United States is in a ton of debt, but why? Moreover, how did the debt even start? That should be the question people need to be asking; instead of pointing fingers on a situation that the people know so little about. It all begins at the Federal Reserve, as Ron Paul said “To understand what is wrong with the Federal Reserve one must know the nature of money.” Background Few may ask, what is the Federal Reserve? Created in Dec. 23, 1913, the Federal Reserve, also known as the “FED” is the central banking system of the United States. Due to the financial panic in 1907, also known as the 1907 Bankers Panic, there was a huge financial scare for the U.S economy. The New York Stock Exchange fell about 50 percent from its peak in 1906, the following year the big panic arose. The economy fell dramatically and spread throughout the nation causing many banks to claim bankruptcy. Without a central bank to liquefy the market, many wealthy people including J.P Morgan, put large sums of their own money in the market, keeping the economy from going under. The following year, the Congress...
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...The Federal Reserve Response to the Recent Recession Rahman R. Funn Webster University BUSN 5620 [ July 23, 2012 ] Ms. Lynn Bailey Abstract This term paper examines the history of the Federal Reserve System and takes a look at what causes a recession and how the FED responded to the most recent one. A recession can cripple a nation if not handled properly. With this paper, I explain how necessary interest rate cuts, the purchase of bonds and mortgage backed securities, and company bailouts were needed to prevent a second Great Depression. These actions will result in the United States creating low, short term-interest rates (near zero) through 2014. The Federal Reserve Response to the Recent Recession This paper examines the history of the Federal Reserve (FED) and how they responded to the recent recession. The goal of this paper is to give the reader insight on the history of the Federal Reserve System and how it was formed. The reader will gain knowledge of what a recession is and how the FED responded to the recent one. The data used for this paper consist of a literature review of articles from the internet websites of NY Times, Federal Reserve. History of the Federal Reserve System (FED) The Federal Reserve System, commonly known as the FED, is the central bank of the United States. Congress established this bank (signed off by President Woodrow Wilson)...
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