...of the study …………………………………. 4 2. Statement of Problem……………………………………… 5 3. Hypothesis………………………………………………… 6 4. Research objective………………………………………… 6 5. Research Question………………………………………… 6 6. Significance of Study……………………………………… 7 7. Scope and Limitation of the Study………………………… 7 8. Research Methodology……………………………………. 7 II. Literature Review……………………………………………… 8-9 III. Discussion III.1. Interest rate versus exchange rate in Bank deposit……… 10 III.1.1 Appreciate US Dollar in Bank Deposit factor…10-11 III.1.2 Depreciate US Dollar in Bank Deposit factor….. 11 III.2. Interest rate affected in Stock market…………………... 11 III.2.1 Depreciate US Dollar in Stock Market………..11-12 III.2.2 Appreciate US Dollar in Stock Market..................12 IV. Conclusion……………………………………………………… 13 V. References…………………………………………………….14-15 Abstract In this paper, I use high frequency data to investigate the extent to which interest rate changes originated in the United States by the Reserve Federal Fund. More specifically, I am interested in understanding in effects of changes in the Federal Reserve Fund’s interest rates on differential between (short term) local currency interest rates. I also investigate how interest rate influences to the foreign exchange market when Federal set the interest rate. The result indicates that Federal Reserve’s rate can influence foreign exchange market in the bank deposit factor and in the stock market. Key words: U.S Federal Reserve, Federal...
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...The Federal Reserve Bank As the United States moves towards a globally interdependent marketplace, the global monetary stakes have become much higher. The United States Congress established the Federal Reserve in the early 1900’s. A country’s debt can now become the world’s debt, and the role of the U.S. federal banking system is now considerably more under pressure and scrutiny than ever before. As we have been seeing with the current liquidity crisis in the U.S., and how it has affected U.K. and Asian markets, strong, comprehensive policy-making is now crucial to sustaining long-term economic viability. The American economy is a complex balance of services, financial, manufacturing, agricultural, and banking industries. For this reason, the U.S. is a global economy, relying upon foreign investments and trade to create and retain wealth. Over the years, America has evolved from farming-based, to industrial, to a services-based economy. As a result, the banking system from its inception has weathered the many growing pains associated with a new government and currency, instituting regulations and a centralized bank to examine the economy, and implementing policies intended to offset factors negatively affecting the general financial health of the country. Despite the growing need for quick, precise actions by the Federal Reserve System, the decision-making regarding the economy is often met with controversy. The recent bail out plan, passed by Congress...
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...Corruption in Banking The largest controller of the banking system in the United States might be the Federal Reserve. Federal Reserve is constructed with board of governors, the Federal Open Market Committee, twelve regional major Federal Reserve banks located in major cities throughout the country, numerous privately owned U.S member banks and various advisory councils. Though the Fed members are appointed by the president and confirmed by the senate, the Federal Reserve is a privately institution controlled by many large privately owned banks. Once the president appoints the boards of governors, the congress has actually no significant influence on the Fed. Therefore the question of corruption in U.S banking system has risen, studies about functions of the Fed reveals that private banks like J.P Morgan has a large control over the formation and management of the monetary policy through the control over the Fed. Due to this relationship between the Fed and the private banks, the Fed has consistently neglected to document the roles and responsibilities between the board of the members, and many cases have been reported. Government Accountability Office reported that, Stephen Friedman, the chairman of NY Fed’s board of members who resigned later, was trying to posses a large amount of shares in Goldman Sachs through an automatic stock purchase program as a way to secretly give bailout to the Wall Street. In addition, in the early may, 2012. Fed’s serving member Jamie Dimon...
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...The Federal Reserve Tanya Stone ECO/212 December 5, 2011 Rina Bills The Federal Reserve The Federal Reserve is the part of the government that is responsible for making decisions on the monetary policy. They also print currency and manufacture coins. This paper will address what money is and the purpose of it. It will also address the Federal Reserve’s monetary policy and its’ effect on production and employment. Money, also known as currency or coin, is used to pay for goods and services. It is necessary in order pay for importing goods to our country. It is also used for purchases such as vehicles, homes, goods, services, labor, and raw materials. It is meant to facilitate trade among countries (The Purpose and Function of Money). The Federal Reserve, also known as the Fed, is the central bank of the United States. It is responsible for managing the nation’s money and credit. It supplies businesses with currency, coins and services for payments from EFT’s (Electronic Funds Transfers) to check-clearing. They are responsible for providing financial services to the United States Treasury, supervising and regulating the banking and financial systems, and overseeing consumer banking protection laws (About the Fed, 2011). According to the Joint Economic Committee Study of October 2000, “Price stability is currently the central focus of the U.S. monetary policy (Saxton, 2000).” There is no agreement, as of 2000, between economists and the Federal Reserve ‘s policy to set...
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...the American economy grew by almost 33% but changed for the worse in 2000 after the dot-com bubble burst & then after the 9/11 attacks in 2001. This created a stock market drop & a rise in unemployment. In effort to avert recession, the Federal Reserve dropped interest rates dramatically. Once interest rates dropped the economy was overflowing with money which lead lenders to be able to provide mortgage loans to, previously, undesirable borrowers. Now the demand for houses rose & so did the prices for the houses making these subprime loans attractive to lenders because of the high return. So the Banks & investment houses continued to invest in mortgage securities but the financial institutions did not maintain enough reserves in case the housing market crashed. Naturally, the housing market came crashing down leaving borrowers “upside down” in their loans & they were forced to foreclose. When this happened, the banks became unwilling to lend money so funds were not available for businesses. Without funds for everyday operations, businesses struggled causing layoffs & raising the unemployment rate. 2. What steps did the Federal government and the Federal Reserve take to mitigate the crisis? The Federal Reserve bailed out Bear Stearns & AIG. The U.S. Department of the Treasury seized Fannie Mae & Freddie Mac. Congress passes the economic bailout plan TARP which spent $700 billion investing in banks & bailing out the auto industry. Congress...
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...LEADERSHIP AND ETHICAL DECISIONS PERFORMED BY KENNETH LEWIS AND THE FED DURRING THE FINANCIAL CRISIS OF 2007-2008 November 29, 2010 Introduction The robust leadership decisions of both the Fed and Kenneth Lewis, CEO of Bank of America (B of A), were not only ethical and accurate, but could have simply saved our financial system as we know it. During the weekend of September 13-14, 2008 Kenneth Lewis met with CEO of Merrill Lynch (Merrill), John Thain, in order to try and rescue Merrill from a hasty bankruptcy that lurked around the corner. Lewis was thinking that it was the perfect opportunity to add the only thing that B of A lacked after recent acquisitions, a “Wall Street investment bank that underwrote and sold securities” (Pozen and Beresford, 2010). On December 5, 2008 B of A’s shareholders voted to approve the merger between the two (Pozen and Beresford, 2010). It wasn’t until days later that Lewis became progressively more concerned about the growing fourth quarter losses on Merrill’s books, from $5.38 billion on November 12 to $12 billion on December 14, one month later. By mid December Lewis began looking for a way out of the deal before the scheduled closing date in late January. Both the Fed and the U.S. Treasury Secretary, resisting that Lewis walk away, threatened to fire Lewis and replace the board at B of A if the merger didn’t take place. Lewis, afraid of legalities from not disclosing the losses to their shareholders before the vote, and the drop in...
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...You Decide Business Economics - GM545 In the case presented the U.S. economy has fallen into a severe and deep recession that economic analyst believes will persist for at least another year. The unemployment rate has risen to levels not seen in over 20 years as the current unemployment rate is 8% and is expected to continue to rise. The inflation rate is -2.4 percent, suggesting that deflation has occurred since prices are falling. Deflation happens when consumers quit buying things, and prices start going down as the demand for goods decrease combined with a decrease in the money supply. Overall there is a decrease in aggregate demand. As is the situation with the case presented – often times the adjusting mechanism forces of the free market alone are not sufficient enough to pull an economy out of recession or to shorten its length. Action by way of fiscal and monetary policies should be taken to expand the economy again and increase aggregate demand. Monetary and fiscal policy are two ways in which governments attempt to achieve or maintain full levels of employment, price stability, and economic growth. Monetary policy is the responsibility of the Federal Reserve System, which uses three main instruments: open-market operations, the discount rate, and reserve requirements to manipulate the money supply and interest rates. Fiscal policy decisions are made by the President and Congress and entail the use of government spending and taxation to influence the economy...
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...Assignment 1: Complexities of the US Financial System Describe how the US financial markets impact the economy, businesses, and individuals. US financial markets play an important role in contributing to the health and efficiency of the economy, businesses, and individuals. (Spiegel, 2002) Because there is a strong relationship between the health of the economy and financial market development and economic growth, even a slight dip in the financial markets can radically effect how the economy, businesses, and individuals respond. (Ask Dr Econ, 2005) Financial markets “facilitate the raising of capital in the capital markets, the transfer of risk in the derivatives market, price discovery, global transactions with integration of financial markets, the transfer of liquidity in the money markets, and international trade in the current markets.” (Financial Markets, 2013) When the financial markets are doing well, “firm-level, industry-level, and cross-country studies all suggest that the level of financial development exerts a large, positive impact on economic growth.” (MIT, 2001) When financial markets are not doing well, interest rates on loans will increase and access to credit decreases. Interest rates are higher because of the risk that banks feel are involved. In times of high risk, interest rates go up. It is a way for banks to limit their losses and make as much money back – just in case a default occurs. So those businesses that are able to get credit are finding...
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...Weekly Reflection Macroeconomics is a fascinating area of study. Students of economics learn about economic interactions between households, business, and government. They study gross domestic product and the effect inflation and unemployment has on the aggregate economy. Students add to their vocabularies terms, such as Keynesian, money wealth effect, and the principle of increasing marginal opportunity. They ponder issues, such as if a country is operating inefficiently and hence is at a point inside the production possibility curve because its lawns produce no crops, but occupy more land than any single crop, such as corn. In addition, students discover that AS/AD is an economic model, not a hard rock band. This week, rates of interest, the United States’ monetary policies, and the Multiplier Model are topics students have an opportunity to explore. Rates of Interest In the world of economic studies, the term, interest rates, inevitably comes up. Interest rates are key factors within the financial sector. Economists define interest rates as the process charged for the use of financial assets. Interest rates fluctuate almost daily. The largest contributing factor is the current economy of the country. When the economy is growing, people are getting more employment, and more saving and lending occurs. Interest rates tend to increase as the demand for money increases. The opposite holds true when the demand for money falls. As the demand falls, interest rates will fall. Another...
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...Chapter 29 The Monetary System TRUE/FALSE 1. In an economy that relies on barter, trade requires a double-coincidence of wants. ANS: T DIF: 1 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Barter MSC: Definitional 2. Joe wants to trade eggs for sausage. Lashonda wants to trade sausage for eggs. Joe and Lashonda have a double-coincidence of wants. ANS: T DIF: 1 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Barter MSC: Definitional 3. The use of money allows trade to be roundabout. ANS: T DIF: 1 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Money | Trade MSC: Definitional 4. Roundabout trade is beneficial for an economy. ANS: T DIF: 1 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Money | Trade MSC: Definitional 5. Money allows people to specialize in what they do best, thereby raising everyone’s standard of living. ANS: T DIF: 2 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Money MSC: Interpretive 6. When money functions as a unit of account, then it cannot be commodity money. ANS: F DIF: 2 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Money MSC: Interpretive 7. Demand deposits are balances in bank accounts that depositors can access by writing a check. ANS: T DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Demand deposits MSC: Definitional 8. According to economists, a collection of valuable jewels is not money. ANS: T DIF: 2 REF: 29-1 NAT: Analytic LOC: The Study of economics, and...
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...Monetary Policy and the Federal Reserve: Current Policy and Conditions Marc Labonte Specialist in Macroeconomic Policy February 9, 2015 Congressional Research Service 7-5700 www.crs.gov RL30354 Monetary Policy and the Federal Reserve: Current Policy and Conditions Summary The Federal Reserve (the Fed) defines monetary policy as its actions to influence the availability and cost of money and credit. Because the expectations of market participants play an important role in determining prices and economic growth, monetary policy can also be defined to include the directives, policies, statements, and actions of the Fed that influence future perceptions. Traditionally, the Fed has implemented monetary policy primarily through open market operations involving the purchase and sale of U.S. Treasury securities. The Fed traditionally conducts open market operations by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. Beginning in September 2007, in a series of 10 moves, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% on December 16, 2008, where it has remained since. With the federal funds target at this zero lower bound, the Fed attempted to provide additional stimulus through unconventional policies. It provided forward guidance on its expectations for future rates, announcing that it “anticipates that, even after employment and inflation are near mandate-consistent levels, economic...
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...dramatically different from the historically dominant theory and practice of central banking, not only in the developing world, but, notably, in the now developed countries themselves. Throughout the early and recent history of central banking in the US, England, Europe, and elsewhere, financing governments, managing exchange rates, and supporting economic sectors by using ‘direct methods’ of intervention have been among the most important tasks of central banking and, indeed, in many cases, were among the reasons for their existence. The neo-liberal central bank policy package, then, is drastically out of step with the history and dominant practice of central banking throughout most of its history. Keywords: financing, institutions, central banks, history, development JEL classification: E5, N2, O2 Copyright © UNU-WIDER 2006 * Professor of Economics and Co-Director, Political Economy Research Institute (PERI), University of Massachusetts, Amherst, Amherst, MA, USA. gepstein@econs.umass.edu This study has been prepared within the UNU-WIDER project on Institutions for Economic Development: Theory, History and Contemporary Experiences, directed by Ha-Joon Chang. UNU-WIDER acknowledges the...
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...NAVAL POSTGRADUATE SCHOOL MONTEREY, CALIFORNIA THESIS ANTHRAX VACCINE AS A COMPONENT OF THE STRATEGIC NATIONAL STOCKPILE: A DILEMMA FOR HOMELAND SECURITY by Thomas L. Rempfer December 2009 Thesis Advisor: Second Reader: Stanley Supinski Dean Lynch Approved for public release; distribution is unlimited THIS PAGE INTENTIONALLY LEFT BLANK REPORT DOCUMENTATION PAGE Form Approved OMB No. 0704-0188 Public reporting burden for this collection of information is estimated to average 1 hour per response, including the time for reviewing instruction, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Washington headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188) Washington DC 20503. 1. AGENCY USE ONLY (Leave blank) 4. TITLE AND SUBTITLE 2. REPORT DATE December 2009 3. REPORT TYPE AND DATES COVERED Master’s Thesis 5. FUNDING NUMBERS Anthrax Vaccine as a Component of the Strategic National Stockpile: A Dilemma for Homeland Security 6. AUTHOR(S) Thomas L. Rempfer 7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES) Naval Postgraduate School Monterey, CA 93943-5000...
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...day now), I am at the hotel room writing this. So here are the facts from the ground: The park is not packed and according to my family the line ups or waiting for any ride or attraction are very small. In fact two days ago they reported that several rides and/or attractions had no line ups at all. The hotels are not full. EVERY SINGLE hotel here (that I can see) has vacancy. Remember, this is on a school holiday! So just like McDonald’s Big Mac is a good inflation indicator (check it online if you are not familiar with it), in my book Disney World is a good proxy (indicator) of the REAL economic health; based on that I am still very cautious about the strength of the US economic recovery and what I am being fed by the Cartel (Federal Reserve), the White House, the various US government agencies and of course the typical US media which is nothing more than the “repeat after me” (reporting what they are being fed, not what they searched and/or investigated)...
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...Monetary Policy in the United States: A Brave New World? Stephen D. Williamson This article is a reflection on monetary policy in the United States during Ben Bernanke’s two terms as Chairman of the Federal Open Market Committee, from 2006 to 2014. Inflation targeting, policy during the financial crisis, and post-crisis monetary policy (forward guidance and quantitative easing) are discussed and evaluated. (JEL E52, N12) Federal Reserve Bank of St. Louis Review, Second Quarter 2014, 96(2), pp. 111-21. en Bernanke chaired his last Federal Open Market Committee (FOMC) meeting in January 2014 and departed from the Board of Governors on February 3 after eight years as the head of the Federal Reserve System. So, the time is right to look back on the Bernanke era and ask how central banking has and has not changed since 2006. There is plenty in the macroeconomic record from 2006 to 2014 to keep economists and policy analysts busy for many years, so in this short piece we can only scratch the surface of what is interesting about the Bernanke era. I will focus on three issues: (i) inflation targeting, (ii) Fed lending and other interventions during the financial crisis, and (iii) post-crisis Fed policy, in particular experiments with forward guidance and quantitative easing (QE). B INFLATION TARGETING When Bernanke began his first term in 2006, I think the big change people expected was an inflation-targeting regime for U.S. monetary policy, similar to what exists in New...
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