...Currency and Coin – Federal Reserve An important function of the Federal Reserve is ensuring that enough cash is in circulation to meet the public’s demand. An important function of the Federal Reserve is ensuring that enough cash—that is, currency and coin—is in circulation to meet the public’s demand. When Congress established the Federal Reserve, it recognized that the public’s demand for cash is variable. This demand increases or decreases seasonally and as the level of economic activity changes. For example, in the weeks leading up to a holiday season, depository institu¬tions increase their orders of currency and coin from Reserve Banks to meet their customers’ demand. Following the holiday season, depository institutions ship excess currency and coin back to the Reserve Banks, where it is credited to their accounts. Each of the twelve Reserve Banks is authorized by the Federal Reserve Act to issue currency, and the Department of Treasury is authorized to issue coin. The Federal Reserve Board places an annual printing order with the bureau and pays the bureau for the cost of printing. The Federal Reserve Board coordinates shipments of currency to the Reserve Banks around the coun¬try. The Reserve Banks, in turn, issue the notes to the public through depository institutions. Federal Reserve notes are obligations of the Reserve Banks. The Reserve Banks secure the currency they issue with legally authorized collateral, most of which is in the form of U.S. Treasury securities...
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...The Federal Reserve System of the U.S. Origin The central banking system of the U.S., the Federal Reserve, was established on December 23, 1913 by the Federal Reserve Act of 1913. Prior to that date, the only official representative of the U.S. Treasury were the First Bank (1791-1811) and Second Bank (1816-1836). They were the sole source to issue and back official U.S. money. All other banks were either state or private organized with their own banknotes. As longs as money was deposited and withdrawn from the same financial institution there was no financial loss. But if depositors withdraw their money from a different bank, they never knew exactly what they would receive. As the U.S. grew in both people and economic and people were able to move more freely, a need for a more standardized banking system become necessary. In 1863, The National Bank Act was passed by Congress. Its purpose was to provide a supervised system of National Banks. These banks were to standardize banking operations, establish minimum capital to be held by banks and how loans were to be administered. They also mandated a 10% tax on banknotes owned by other banks. This eventually eliminated all other banknotes. After a severe financial panic in 1907 concerning Wall Street, many Americans felt that their banking structure was out of date and needed reform. In 1912, hearings were held to examine the U.S. banking system. The committee concluded that the U.S banking and financial system...
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...(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 Zealand, Canada, and the United Kingdom, for example. While that may have been in the cards, by the time Bernanke had settled into the job, events had overtaken him and he clearly ended up with much more than he bargained for. In terms of how Fed officials think about their jobs and how the public thinks about the role of the central bank,...
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...by Richard Sylla Currency note of one shilling, six pence, printed in the colony of New Jersey in 1776. (Gilder Lehrman Collection) Banks are among the oldest businesses in American history—the Bank of New York, for example, was founded in 1784, and as the recently renamed Bank of New York Mellon it had its 225th anniversary in 2009. The banking system is one of the oldest, largest, and most important of our industries. Most adult Americans deal with banks, often on a fairly regular basis. Nonetheless, banks and banking seem rather mysterious. What do banks do? Why have they for so long been an integral part of our economy? Why, as in the financial crisis that commenced in 2007, do banks every so often get into trouble and create serious problems for the country? Banks have two important economic functions. First, they operate a payments system, and a modern economy cannot function well without an efficient payments system. We make most of our payments by writing checks, swiping credit cards issued by banks or tied to them, and by paying bills via online banking. Most of the money stock of the country is in fact bank money; the rest of the currency is “legal tender” issued by the government, namely Federal Reserve Notes and coins. We have confidence in bank money because we can exchange it at the bank or an ATM for legal tender. Banks are obligated to hold reserves of legal tender to make these exchanges when we request them. The second key function of banks is financial...
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...accelerated rapidly as the war progress. Eventually, people lost faith in the notes and they quickly became worthless. This would lead to three failed attempts to decentralized US Banking in an effort to restore trust and avoid economic disaster, after the failed attempts, The Federal Reserve Act was established in 1913 by Congress. This, at the time secured and stabilized the nation’s economy. From December 1912 to December 1913, the proposal underwent heated debates, a lot compromising, molding, and reshaping. By December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law. This was the first accepted decentralized central bank that balanced the competing interests of private banks and populist sentiment. The Federal Reserve or the “Feds” has the authority to make bank loans and back the notes printed. The purpose of the Federal Reserve System is to regulate banks and to manage the amount of money that is accessible within the economy. The Feds uses two of its tools to accomplish this, one, it can change the interest rates on the money it lends to banks. A higher interest rate makes money more expensive, thus discouraging banks to lend. Lowering interest rates causes the opposite effect. Two, they have the authority to change reserve requirements. A reserve requirement is the percentage banks must keep in their vaults of their total loan portfolio. Obviously, if the Fed lowers this requirement, the banks can increase their leverage and lend out...
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...Quantitative Easing: Entrance and Exit Strategies by Alan S. Blinder, Princeton University CEPS Working Paper No. 204 March 2010 Acknowledgements: Paper prepared for the Homer Jones Memorial Lecture at the Federal Reserve Bank of St. Louis, April 1, 2010. I am grateful to Gauti Eggertsson, Todd Keister, Jamie McAndrews, Paul Mizen, John Taylor, Alexander Wolman, and Michael Woodford for extremely useful comments on an earlier draft, and to Princeton’s Center for Economic Policy Studies for research support. Apparently, it can happen here. On December 16, 2008, the Federal Open Market Committee (FOMC), in an effort to fight what was shaping up to be the worst recession since 1937, reduced the federal funds rate to nearly zero. 1 From then on, with all of its conventional ammunition spent, the Federal Reserve was squarely in the brave new world of quantitative easing. Chairman Ben Bernanke tried to call the Fed’s new policies “credit easing,” probably to differentiate them from what the Bank of Japan had done earlier in the decade, but the label did not stick. 2 Roughly speaking, quantitative easing refers to changes in the composition and/or size of the central bank’s balance sheet that are designed to ease liquidity and/or credit conditions. Presumably, reversing these policies constitutes “quantitative tightening,” but nobody seems to use that terminology. The discussion refers instead to the “exit strategy,” indicating that quantitative easing (“QE”) is looked upon as...
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...Sagar Patel ECON 403 Professor Balkin 4/30/2014 Federal Reserve Bank of Chicago The United States went a long time without a central bank. On December 23, 1913 Woodrow Wilson signed the Federal Reserve Act. This includes the board of governors which is a government agency in Washington D.C. and also twelve reserve banks that are located across the country. The most important thing the Federal Reserve Bank does is manage the nation's economy through monetary policy; they are also a financial regulator. The Federal Reserve also makes sure that all payments are secure. The 7th district is a known for its agriculture, large cities, and manufacturing sectors. The research that they do at the Chicago Fed is looking at trends and employment to see where the economy is going. They eventually have a big meeting where they present all of the information to the president of the Chicago Fed. Then the president of the Chicago Fed goes to Washington D.C. where he meets with seven governors and the 12 presidents. They all have the opportunity to discuss their views and construct different strategies. When the economy is heating they need to input a contractionary policy where they raise interest rates to slow the economy down. For them to speed up the economy they need to lower interest rates, so people across the United States start borrowing again. The banking system is the backbone of the economy. Supervision of banks is to make sure they are properly protecting your money. Examiners...
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...Monetary Policy Monetary Policy Introduction The objective of this paper is to study the monetary policy and its impact on the economy. Monetary policy is the process by which the Federal Reserve Bank manages the supply of money in order to influence the economy. By regulating the supply of money, the Federal Reserve Bank controls inflation and price-stability, unemployment, and economic growth. The paper also provides some insight into the creation of money. Details The U.S. is the world’s largest economy, and such its monetary policy has widespread implications both domestic and global. The objective of the policy is to influence factors like inflation, economic output, and employment by affecting demand for goods and services. This policy is carried out by the Federal Reserve System. The Federal Reserve (the nation's central bank), consists of the Board of Governors in Washington, D.C., and 12 Federal Reserve District Banks. Although accountable to congress and structured by law, the fed is totally separate from the departments that manage the country's spending decisions. Within the Federal Reserve System is another sub agency called the Federal Open Market Committee (FOMC), which consists of the Board of Governors of the Federal Reserve System and the Reserve Bank presidents. The FOMC holds eight regularly scheduled meetings during the year, and other meetings as needed. Monetary policy is generally referred to as either being an expansionary...
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...International Economics Paper Gabriela University of Phoenix Author's Note This paper prepared for ECO/372 facilitated by Introduction The Federal Reserve system is the main banking system within the United States. Established by Congress, its primary objectives are to seek full employment for US citizens, ensure price stability, supervise banks via regulation, provide financial services to banks, the US government, and foreign official institutions, and review and stabilize long-term interest rates. A seven person Board of Governors, also known as a federal agency, administers the Federal Reserve. Currently the Board Chair is Janet Yellen, the first woman to hold the position since the Reserve's creation in 1913. The Federal Reserve balances are affected by not only the Board but by the Federal Open Market Committee, which monitors monetary and credit market conditions within the US as well as foreign exchange markets (Board of Governors of the Federal Reserve System, 2015). The Reserve is an essential component in the current monetary and fiscal policy. The president and Congress are policy makers who seek to influence the economy with this monetary and fiscal policy. They seek legislation that changes taxes and increases or decreases government spending and borrowing. Central banks take cues from this legislation and therefore adjust interest rates, reserve requirements, and the buying and selling of government securities and foreign exchange (Horton...
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...VISHESH KUMAR 10BSP1181 MONEY MARKET AND MONEY MARKETS INSTRUMENTS ABROAD The money market is the arena in which financial institutions make available to a broad range of borrowers and investors the opportunity to buy and sell various forms of short-term securities which are highly liquid and are relatively low-risk debt instruments. The maturities of money market instruments range from one day to one year and are often less than 90 days. It comprises of the call and notice money market, repo market and the market for debt instruments. There is no physical "money market." Instead it is an informal network of banks and traders linked by telephones, fax machines, and computers. Banks financial institutions, companies and government are the key participants in the money market. The size of the transactions in the money market typically is large ($100,000 or more). At the center of this web is the central bank whose policies have an important bearing on the interest rates in the money markets. The money market provides an equilibrium mechanism for levelling out the demand and supply of short term funds and serves as a focal point for the intervention by the central bank (RBI in India) for influencing the liquidity and interest rates in the financial systems.The money market is important for businesses because it allows companies with a temporary cash surplus to invest in short-term securities; conversely, companies with a temporary cash shortfall can sell securities or borrow funds...
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...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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...can score 25 points simply by turning in a blank exam. It also means that a complete guess will score 4 points with probability ¼ and 0 points with probability ¾. On average, such a guess will score 1 point, which is exactly what you would get if you didn’t bother answering in the first place. 2 of 9 1. Which of the following is not commonly identified as a role of money? (a) (b) (c) (d) Money is a store of value Money is a unit of account Money avoids the need for a double coincidence of wants. Money counters the effects of Gresham’s Law. 2. Suppose the Fed looks to make an open market sale to the banking sector of $1 million worth of securities. If you were to trace the effects of this through the T-accounts for the Fed, the banking sector as a whole and the general public, which of the following would you observe? (a) (b) (c) (d) Bank reserves held at the Fed would increase by $1m. Bank reserves held at the Fed would decrease by more than $1m. Money supply would fall by more than $1m. Bank deposits would increase by more than $1m. 3. Amy is considering buying a nominally denominated coupon bond at the prevailing price, P. Which of the following will increase expected real returns on the bond over the next year, if other things are held constant? (a) (b) (c) (d) Higher inflation expectations for the year. Higher expectations for future interest rates. Lower...
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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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...Chapter 12 - Macroeconomic and Industry Analysis CHAPTER TWELVE MACROECONOMIC AND INDUSTRY ANALYSIS CHAPTER OVERVIEW This is the one of three chapters that covers fundamental security valuation. This chapter introduces a topdown approach to fundamental security analysis. It covers the first two components: macroeconomic and industry analysis. The textbook begins with a global analysis, particularly with respect to how the performance of domestic firms is influenced by international economic performance. The chapter’s main focus however is on aspects of the U. S. economy that affect security returns, including fiscal and monetary policy. In addition, a brief presentation of the determinants of interest rates is covered. The chapter concludes with a discussion of industry analysis that includes classifications of industries, information sources, the industrial life cycle and a Porter framework that can be used to analyze industry competition. LEARNING OBJECTIVES Upon reading this chapter, you should have a basic understanding of some of the macroeconomic factors that affect security prices. That is, how fiscal and monetary policy affect interest rates and security prices. And some industry groups are more affected by macroeconomic factors than others and the characteristics of an industry that affect its competitiveness. CHAPTER OUTLINE The top-down approach to fundamental analysis begins with analyzing the economy. Expected economic performance will influence...
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...The U.S. Treasury was inquiring about the possibility that Salomon had engineered a "squeeze" in the market for $12 billion in new Treasury notes auctioned on May 22, 1991. Ordinarily, the Treasury's concern over the possibility of a squeeze was not particularly problematic. Squeezes—that is, an unpredicted shortness of supply or high demand for a security—were not uncommon and developed for a variety of reasons. Unfortunately, Meriwether had reason to believe that one of Salomon's bond traders had recently violated the Treasury's auction rules. Paul Mozer, the managing director under Meriwether overseeing Salomon's trading in U.S. Treasury securities, had disclosed to Meriwether in late April that he had broken the Treasury's limit on the size of a dealer's bid in Treasury auctions. Mozer had admitted that he submitted a bid in a February auction using the name of a customer without authorization and had managed to buy more bonds than the Treasury guidelines allowed. The problem struck close to the heart of Salomon's business. Although Salomon was among the leaders in the traditional investment banking activity of debt and equity underwriting—acting as the intermediary between issuers of new securities (corporations and governments) and the investors who bought them—its trading in securities markets drove the firm's profitability and was a key part of its heritage. Profits from "principal transactions," largely the buying and selling of securities for Salomon's own account, generally...
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