The Federal Open Market Committee Coursework Example | Topics and Well Written Essays - 1500 words

The federal official point-blank Market Committee - Coursework ExampleThe depository institutions of the parsimony traveling bag some balances with the Federal view as beach. The depository institutions also lend balances at the Federal concur to other such institutions overnight. The interest pass judgment at which these balances are lent is known as the federal bills rate. The Federal Reserve, with the help of its three policy instruments, influences the demand and supply of these balances held by the depository institutions at the Federal Reserve and thus also changes the federal funds rate. As the federal funds rate changes, this starts a sequence of activities which influences other short term interest rates, long term interest rates, international exchange rates, issue forth of money and credit circulating in the economy, employment, output, the prices of goods and services and many other stinting variables. (Board of Governors of the Federal Reserve System, 2011)The Three Main Tools of Monetary PolicyOpen Market Operations on a lower floor the open market place operations, the Federal Reserve Bank buys and sells U.S Treasury bills and federal agency securities in the market. These operations are usually conducted to achieve a desired level of balance reserves which the depository institutions hold with the Federal Reserve. The operations can be conducted to achieve a desired value of the federal funds rate too. Usually, the short-term objectives of the open market operations are specified by the Federal Open Market Committee... m, 2011) (Board of Governors of the Federal Reserve System, 2011) The Discount Rate The Federal Reserve Bank has its branches situated in the different regions of USA. These regional Reserve Banks have a lending facility called the give the sack window through which they extend loans to the commercial banks and other depository institutions of that region. The interest rate charged on these loans is the discount ra te. The Federal Reserve Banks offer three types of loans through their discount windows primary feather credit, secondary credit and seasonal worker credit, extended at their respective discount rates. The primary credit discount rate is stipulated above the short-term market interest rate level. The secondary credit discount rate is set above the primary discount rate. The seasonal credit discount rate is determined by calculating an average of selected market interest rates. The regional Reserve Banks Board of Directors determines their respective discount rates, although they remain to the check up on of Board of Governors of the central Federal Reserve Bank. The funds borrowed by the Commercial Banks from the Federal Reserve Bank from January- July 2011 can be seen from the following table (Board of Governors of the Federal Reserve System, 2011) (Board of Governors of the Federal Reserve System, 2011) Reserve Requirements The Federal Reserve Bank stipulates an amount of funds that the depository agents should keep as reserves against specific amount of deposit liabilities. These are known as reserve requirements. The depository institutions usually hold these reserve requirements in the form of deposits or vault cash with the Federal Reserve Bank. Only the Board of Governors of the Federal Reserve Bank holds the power to change the reserve requirements. (Board of Governors