Federal Reserve Presentation

Federal Reserve Presentation
Introduction:
The central Bank of the United States is known as the Federal Reserve. It is characterized by a unique structure which includes 12 Reserve regional banks and a federal government agency who’s Board of Governors is located in Washington D.C. It was created in 1913 after a series of financial panics and in particular that of 1907. Three imperative key objectives were established, they include stable prices, maximum employment and reasonable long term interest rates (Hetzel, 2008).
Factors that would influence the Federal Reserve in adjusting the discount rate
Factors that would influence the Federal Reserve in adjusting the discount rate include:
Money supply: When money supply in the economy increases, the Federal Reserve increases the discount rate to encourage more savings
Rate of borrowing: When the rate of borrowing is high the Federal Reserve increases the discount rate to discourage borrowing.
Available reserves: When the available reserves decrease, the Federal Reserve decreases the discount rate to encourage more savings. Interest rates: This is where a decrease in interest rate would culminate into a decrease in the discount rate (Brezina, 2012).

Does the discount rate affect the decisions of banks in setting their specific interest rates? The discount rate charged on the commercial banks by Fed for reserve lending is unavoidably less than the Federal funds rate. Therefore, the interest rate charged by commercial banks to other banks is usually higher to ensure profitability of banks. This is usually facilitated by the fact that commercial banks usually borrow from each other When Federal Reserve increases the interest rate charged on other banks, the commercial banks increase their prime rate, which affects the rates charged on mortgages,