How does the Fed pursue its economic goals How may the tool...

Question

How does the Fed pursue its economic goals  How may the tools ofmoneta...

Accepted Answer

The US federal reserve or any other central bank mainly pursues its economic goals by the instruments of monetary policy The FED has mainly three instruments of monetary control 1 Open market operations these involves buying and selling securities by the Fed to and from the commercial banks of the country at a certain rate These affects the cash flows of the private banks which affects the security prices due to the change in rate and amount of lending 2 Reserve requirement all the banks have to maintain certain reserves in the form of securities or cash to the Fed or within their vaults Any change in reserve requirement may change the prices of securities as banks wont be able to grant credit to customers less than what it receives from the Fed or if the reserve requirement is too high and bank is short of cash it would further try to borrow money from other sources to meet fed requirement So it will affect the price of securities 3 Discount rate This is the third tool which the banks only use to borrow money from the Fed discount window when all others sources of borrowing funds fails this is not a good sign for bank as many people may feel the bank is in some sort of financial trouble This also in turn affect the securities prices as the banks in trouble wont be able to lend more money and also they will have to lend at a rate higher than the discount rate the bank has to pay to the Fed reserve So in short all the instrument ....

How does the Fed pursue its economic goals? How may the tools of monetary policy affect...

90.2K

Verified Solution

Question

Finance

How does the Fed pursue its economic goals? How may the tools ofmonetary policy affect securities prices?

Answer & Explanation Solved by verified expert

Get Answers to Unlimited Questions

Membership Benefits:

Transcribed Image Text

Other questions asked by students

Arrange the following gases in order of increasing rate of effusion at 298 deg K. (Hint: Look...

Given: a 315MHz binary message is being ASK modulated with a carrier frequency of 38KHz. Write a...

Which of the following best describes the location of the ganglia for the parasympathetic division...

A vehicle of mass M is accelerated on a horizontal frictionless road under a force...

ED THIS Read Section 1 7 Pages 20 26 Watch KCVS 1 6 1 7...

K Which of the following values cannot be probabilities 0 03 2 0 59 0...

Factor the expression 5x 29x 42

A can of spray paint shoots out paint in a cone shaped mist The lateral...

ILLUSTRATION 10.2 Profit and Loss Account of William for the year ended 31st March, 2015...

Assume that Casio Computer Company LTD. sells handheld communication devices for $110 during August as...

Assignment Steps Part 1: Analyze the Week 1 Business Growth Overview dataset. This is a...

Mevute 02/28/21 3:48 PM Homework: Ch 15 Save core: 0 of 1 pt 4 of...