THE FEDERAL RESERVE

The Federal Reserve of US

Abstract

In this study, we will discuss “The Federal Reserve of the U.S” and in depth description of how the Federal Reserve sets interest rates. The research also analyzes many aspects of “how these interest rates affect foreign and domestic markets. Finally, the research describes various factors, which are responsible for the fluctuation in the interest rate, and tries to describe the overall effect of “US Federal Reserve” on “Financial Market”.

The Federal Reserve of the U.S

Introduction

The Federal Reserve System, also known as the Federal Reserve and informally the Fed, is the central bank of the United States of America. The basic aim of the Federal Reserve was to ensure Stability in the banking system and to keep short run pressure out of the monitory policy. The Fed was established with the approval of the Federal Reserve Act of 23 December 1913 by the Congress of the United States and its operations began in 1914. The approval of the legislative text of the Federal Reserve Act was preceded by an investigation by the National Monetary Commission, established in 1908 after the financial crisis of 1907, and a long debate in Congress. Till 191, The National Monetary Commission did significant amount of research and analysis on the U.S. monetary system. The Commission put forward several proposals for the introduction of an institution which had the task of preventing and reducing possible financial crises (www.ircforex.com).

Discussion

The Federal Reserve decides the monetary policy of the United States with a twofold objective of price stability and full employment and the obligation to facilitate economic growth. Along with this, it supervises the banking system of the U.S., moreover they publishes reports, such as the beige book , on the U.S. economy acts as lender of last resort, can influence the external value of the currency, the U.S. dollar in particular through the use of interest rates (interest lenders) to motivate the arrival or capital flight, and thus affect the money supply and economic growth United States (such as protectionism in disguise that eventually leads to a devaluation of the dollar and thus a better price competitiveness), is independent of political institutions There are three tools to conduct monetary policy.

Open Market Operations: When the Fed buys financial instruments, puts more money in circulation. With more money available, interest rates tend to decrease, and thus more money is borrowed and spent. When the Fed sells financial instruments, money out of circulation, causing interest rates to rise, makes loans more expensive and therefore less accessible.

Adjust The Amount Of Reserves. A member bank pays most of the money deposited in it. If the Fed says they should keep more reserves, the amount of money a bank can lend decreases, making loans more inaccessible and cause increases in interest rates.

Discount Rates. Changing the interest rate at which banks can ask the Federal Reserve System. Member banks may borrow short term to the EDF. The interest charged by the Fed to banks for loans are called discount rate, which exceeds the interest rate commercial ...