Central Banks & FED Flashcards

1
Q

CB Responsibilities

A

(i) issuing currency; (ii) administering monetary policy; (iii) holding deposits representing bank reserves; (iv) executing open market transactions to facilitate smooth functioning of the financial system and protect the public interest.

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2
Q

CB Objectives

A

(i) price stability (controlling inflation); (ii) maintaining sustainable economic growth; (iii) stability of financial markets: interest rates, foreign exchange

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3
Q

CB Tools

A

(1) Monetary Policy: relates to the control of money supply and directly or indirectly, demand for money; (2) Fiscal Policy: related to government activity and is not direct by central banks, although governments take central bank advice into consideration.

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4
Q

How CB use Monetary Policy:

A

(i) increasing or decreasing short- term interest rates; (ii) reserve requirements; (iii) open market operations

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5
Q

How to use Fiscal Policy

A

(i) taxation, (ii) direct government investment and spending, (iii) fiscal policy can have a direct impact on both growth and inflation.

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6
Q

What is the FED?

A

Central Bank of the US| Twelve subsidiary banks; Governed by the Board of Governors; Federal Open Market Committee (FOMC)

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7
Q

What does the FED do?

A

(i) manages the discount rate (rate charged to institutions borrowing from the central bank); FED has a limited direct effect on bank borrowing, but acts as a proxy rate for other short-term rates that impact both institution and individual borrowers.

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8
Q

Long Term Objectives of the FED?

A

(1) Price stability (no specific inflation target); (2) sustainable economic growth

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