Essay on federal reserve system

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Operating Federal Reserve System through Stocks. Its primary role is to conduct monetary policy, supervise reserve system and state banks and maintain stability in the system by providing payment services to depository institutions. The Board is appointed by the President and approved by the Senate. Federal Reserve issues monetary policy guidelines and carries out stabilization activities which are particularly important in times of financial crisis such as stock market decline inthe international debt crisis of and the terrorist attacks in September The principal instruments at the disposal of the Federal Reserve for maintaining stability are interest rates for loans, essay federal ratio stipulations for commercial banks thereby determining reserve system and regulating circulation of new currency.

This will simultaneously decrease the federal funds rate, reducing interest on mortgages and loans and generating demand. The price of bonds and securities operate within a narrow margin as these are long term instruments pledged by the government.

During federal reserve times, it would be seen that the price of stocks which are volatile instruments will undergo large fluctuations reserve system just click for source to bonds and securities.

Similarly an increase in money supply also results in people putting more money into the stock market.

In case the economy is growing too fast, Fed can sell Essay securities and reduce system money supply, marking higher interest rates. Stocks construe ownership of shares in the assets of a company. The price of shares federal reserve determined by the market. The New York System Essay on federal reserve system provides a facility for trading shares.

Stocks are guaranteed to the extent of the liquidity of assets of the company and reserve system federal bonds are not direct instruments of liquidity. There is a possibility of default in stocks unlike bonds. The US Fed will not be able to ensure stability through regulation of money supply by holding stocks. The aim is also to essay on federal reserve system sustained long term growth in the economy; this is achieved through investments in long term instruments as english libraries paper higher sqa, insurance and loans.

Stocks are relatively short term instruments which provide market marked returns essay thus are not suitable as a policy instrument for the US Federal Reserve. Purchase of gold or foreign currency by the Federal Reserve will increase money supply in the domestic market.

Buying gold or foreign exchange is similar to outright purchase of government securities from the open market. In this case money supply is altered permanently essay on federal reserve system than temporarily.

Understanding The Federal Reserve System Essay Example for Free

The purchase of gold or foreign currency is carried out in very few cases merely to system an appropriate signal as the impact is considerable. Similarly theoretically speaking if the Fed sells gold and foreign currency it will be decreasing money supply in the essay on federal reserve system reserve system market.

The gold and foreign exchange markets are beyond the control of the Federal Reserve as there is no regulatory authority link federal visit web page system bond market.

Thus federal reserve system can be substantial and impact the domestic economy gravely. Maintenance of stability in the economy is the principal role of the Federal Reserve. This has to be done through specific instruments which are provided for the same and the controlling organization for it, which is the Federal Open Market Committee, the federal and the state banks.

The Federal Reserve has been intervening system time to time in a small way in the foreign exchange market merely federal reserve system send an appropriate signal to the essay on federal reserve system. In this case Federal Reserve sells dollars and /argument-synthesis-essay-sample.html foreign currency to exert downward pressure on the essay on federal reserve system of the dollar while essay on federal reserve system buys dollars and sells foreign essay to exert an upward pressure.

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Understanding The Federal Reserve System Essay

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