Complexities in the U.S. Financial System

Complexities in the U.S. Financial System

Introduction

The U.S. financial markets are the backbone of the world economy. They impact the economy, business and individuals. It is interesting to see how the U.S. Federal reserve function and the influence it has on today's economic environment. The U.S monetary policy and exchange rates also have far reaching affects with respect to our daily lives.

Discussion

The U.S. Financial markets are a part of economic systems and affect it by making the economic transactions easier. It reduces the cost of transaction by making them broadly accessible. Although most parts of the financial markets respond to economic trends, financial markets themselves influence how the economic systems operate. Effectively operating financial markets determines the value of credit within the economy which directly impacts the level of investment. Lower cost of credit will make businesses less liquid constrained and more capable to invest in capital stocks. It affects the individuals as disposable household income increases thereby increasing the level of aggregate demand. Financial markets will help contribute economic prosperity, price stability and employment.

The role of U.S. Federal Reserve is to address banking panics by preventing bank run, serve as U.S Central Bank, to oversee banking institutions, protect consumer credit rights, managing money supply via monetary policy, maintain stability of the financial system, provide financial services to U.S. government and foreign official institutions and above all to strengthen U.S position in the world economy.

The role of U.S. Federal Reserve chairman and his Board is to analyze the domestic, international financial and economic developments (Dummies, 2013). It regulates the Federal Reserve Banks and administration of consumer credit protection laws. It supervises the U.S. Banking system, foreign bank's activities in the U.S. and bank holding companies. In today's economic environment, it provides a stringent check that everything is ...