![]() The Fed pays interest on these required reserves and also on the excess reserves that banks choose to hold at the Fed. The Fed requires that commercial banks hold reserves against their checkable deposits. These securities are part of the public debt-the money borrowed by the federal governmentĬommercial banks occasionally borrow from Federal Reserve Banks Liabilities Reserves of Commercial Banks: Lower bond price will raise the interest rate Assets The two main assets of the Federal Reserve Banks are securities and loans to commercial banks.īonds that have been purchased by the Federal Reserve Banks. We find the total demand for money by horizontally adding the asset for demand to the transactions demand, resulting in a downsloping line Interest Rates and Bond Prices -Inversely related The demand for money as a medium of exchange Interest A sum paid or charged for the use of money or for borrowing money The Demand for Money Transactions demand for money: monetary policy Government policy that attempts to manage the economy by controlling the money supply and thus interest rates. The Fed has ultimate responsibility for regulating the supply of money, and this enables it to influence interest rates. It makes periodic examinations to assess bank profitability, to ascertain that banks perform in accordance with the many regulations to which they are subject, and to uncover questionable practices or fraud. The Fed supervises the operations of banks. To carry out these activities, the government uses the Fed's facilities. The government collects huge sums through taxation, spends equally large amounts, and sells and redeems bonds. The Fed acts as the fiscal agent for the federal government. The Fed provides the banking system with a means for collecting on checks. The Fed makes routine short-term loans to banks and thrifts and charges them an interest rate called the discount rate ![]() Lending to financial institutions and serving as an emergency lender of last resort: The Fed sets reserve requirements, which are the fractions of checking account balances that banks must maintain as currency reserves. ![]() Setting reserve requirements and holding reserves: The Federal Reserve Banks issue Federal Reserve Notes, the paper currency used in the US monetary system The FOMC is made up of 12 individuals: The seven members of the Board of Governors, The president of the New York Federal Reserve Bank, and Four of the remaining presidents of the Federal Reserve Banks on a 1 year rotating basis Fed Functions Issuing currency: The bankers' banks Federal Open Market Committee (FOMC) The FOMC aids the Board of Governors in conducting monetary policy. government to control the money supply and perform other functions Terms are 14 years Federal Reserve Banks the 12 banks chartered by the U.S. Board of Governors In the Federal Reserve System, a seven-member board that makes most economic decisions regarding interest rates and the supply of money.Īppointed by US president with confirmation of the Senate
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