Federal Reserve System Case Study

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As we are moving to the end of the course, we want to present you with the Federal Reserve System (Fed), which is the central bank of the USA. We are going to explore the roles of Fed in regularizing the economy, its function, and also the tools used in doing that. We will learn how central banks regulate the banking system and how they manage money supply in economies. We will also be presented to the financial crises lessons we can be able to understand the importance of the regulatory system; and then, we answering questions such as:

1. Which of the monetary tools available to the Federal Reserve is most often used? Why?

According to federalreserveeducation.org, the term "monetary policy" refers to what the Federal Reserve, the nation 's central bank, does to influence the amount of money and credit in the U.S. economy, (n d). The tools used are diverse but the main ones are: …show more content…

It is the primary tool used by Fed to influence the supply of bank reserve. When Fed wants to increase reserve, it buys securities, and when it wants to decrease reserve, it sells them.

Discount Rate, it is in fact, the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank 's lending facility, (Board of Governors Federal Reserve System, n d). The financial institutions must borrow funds at this interest to the Federal Reserve System. Fed use this tool to control the supply of money something that will affect the inflation and the overall interest rates.

Reserve Requirements, it is the amount of funds that the financial institutions have to hold in their vault. No one has the right to change the Reserve requirement, yet the Board of

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