...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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...reluctant to lend is because so many businesses have failed. Additionally, many small businesses are behind on their payments, and commercial real estate, business loans and others are also giving in to the stress. One way that individuals are impacted by the U. S. financial markets is when companies lay people off. People stop spending money when they lose their jobs, which has an affect on individuals, businesses, and the entire economy (Chong & Miffre, 2009). The central bank of the United States, better known as the Federal Reserve System, was created by Congress in 1913. The reason for creating the Federal Reserve System was to ensure that a safe, flexible, and stable monetary and financial system existed in the United States. The Federal Reserve chairman heads the central banking system in the United States and is the Federal Reserve Systems', executive officer of the Board of Governors (Central Ban, n.d.). The board’s responsibilities include, (1) analysis of domestic and international financial and economic...
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...Response to the Finance Questions Name University Response to the Finance Questions Response to Question 1 Liquidity premium theory states that the yield obtained from the bonds that are long term are greater than the return that is expected from short-term bonds that roll over so as to compensate long-term bonds investors for bearing the risks of interest rate. Bonds that have different maturity can, therefore, have different yields regardless of the possibility of future short rates being equivalent to the present short rate. This results in a yield curve that bends upwards even if the short rates are expected to fall if liquidity premiums are sufficiently high. However if the curve slopes downwards and an assumption is made that the liquidity premiums is positive, then we can presume that future short rates would be lower than the present short rate (Lim & Ogaki, 2013). Liquidity premium theory agrees with expectations theory since it gives the same significance to the expected future spot rates though it puts more weight on the impacts of the risk preferences that exist in the market. The main concept of this theory is to compensate an investor for the additional risk of having his capital tied up for a more extended period. It, therefore, aims at enticing investors to engage in long-term investments. Due to the uncertainty associated with long-term rates which have less marketability and greater price variability, investors, therefore, need to be given higher...
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...on Behind the Doors of the Federal Reserve by James L. Rowe Jr. explains what is money and how it works? James explores about The Federal Reserve’s role and analysis the monetary policy. James discloses the values of different market products therein chicken, cattle, pigs, wampum, tobacco and beer. James mentions that the money comes in the US in three forms there in coins, currency and deposits by accounts. The article is very interesting and thought provoking which examines the economy and challenges for the business and employment. The consumers involve indirectly with the Fed and monetary policy implies through banks. The policy can vary because policy makers make changes regarding the time’s requirements. James does not suggest inflation strikes on fixed incomes because it influences badly on fixed deposits. James considers that demand for goods and services are very important because it directly connects with supply chain. He discusses monetary policy and compares to business, prices, jobs and loans’ ratio because policy cannot force to banks. According to James, moving the market depends on monetary policy as well the bank involves because a bank has ability to increase funds and controlling lend by borrow. Reserve requirements also very important term which is used on a percentage of checking deposits. Reserve requirements works with commercial banks usually and require a reserve balance. On the other hand, a bank cannot lend require reserve because Fed bring on controlling...
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...The U.S. financial system has many complexities and it is impacted by several environmental factors including federal regulations and the economy. The U.S. financial markets impact the economy, businesses, and individual by the movement of funds among financiers, businesses and governments. It involves investments in the area of sales or marketing of securities, the management of investment risk through portfolio diversification and the analysis of securities. Melicher, R. W., & Norton, E. A. (2011).Pg. 6 The U.S. Federal Reserve is the central bank of the United States and is responsible for regulating the banking system, setting monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices. ("What is the," 2013) The role of the U.S. Federal Reserve is important for the U.S. payment system. It provides banking service for the twelve Federal Reserve Banks by providing banking service to depository institutions and to the federal government. The depository institutions maintain accounts including collecting checks and provide various payment services, distributing and receiving currency and coin, and electronically transferring funds. Melicher, R. W., & Norton, E. A. (2011). The Federal Reserve Chairman is a position with high ethical standards and morals; a high standard are a must. A successful chair must have the confidence and trust of the president and Congress and bank officers, foreign officials,...
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...industry and the lumber industry are not one in the same and experience differences price elasticity. The price elasticity of demand for the timber industry is inelastic. Often landowners will hold inventory to sell at a later date if demand is low. The timber will not lose value in storage so price does not need to change. The price elasticity of supply for the timber industry is elastic, as prices typically increase in the spring due to low volume of timber as a result of winter weather. Possible Negative Externalities Recreational and Commercial Fishing: Corporations may elect not to harvest timber and lose earnings if timber harvesting damages the fish habitat. Water Pollution: If timber harvesting pollutes the public water system, costs may be incurred in the remunerations effort. Risk of Flooding: Increased runoff my decrease sewer capacity costing taxpayers additional money to repair the damage. Water-Quality Reduction: If timber harvesting decreases the quality of water, other companies that use the water to cool or clean their equipment or products may suffer damages. Possible Positive Externalities Recreational Opportunities: Forests provide many recreational opportunities such as hunting, fishing, camping, and hiking. Essential Habitats: Forests provide essential habitats for endangered plant and animal species. Wage Inequality Wage inequality is virtually nonexistent in the timber industry. However, false accusations of wage inequality...
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...The U.S.A, financial system is very difficult. So much so that it impacts at least several influences climate as well as federal regulations and the economy. All these factors have the same problem on the economy, and business people alike. The Federal Reserve Chairman, and Board, also plays a direct role into the running of today’s economic climate. The complications that impact the U.S.A also have a direct influence on the world’s financial economy environment. A lot of these big issues include the exchange rate as well as the interest rate, the highs and lows. The U.S.A financial place has a huge impact on people, businesses, and climate. Thanks to financial places which help colorfully in pack the flow of investments and savings in the economy in ways that can control the increase of management and capital of goods and services. Returns on investments and credit is worth the provide signs to consumers and producers alike. Signs like these help guide money from businesses and savers to the investors and, businesses, governments, and consumers. Funds can advance when financial academy and markets remain successful on a big level between countries. In addition, successful financial academy and markets tend to lower transactions and search costs in the economy. By making a large scale of financial products know to the people, which maintain a constant change with pricing structures and risk as well as capability. A sound financial system offers good useful products that give...
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...A MUST READ on FED RESERVE by AYO-IGE.M A monetary control institution of a Nation is often refer to as the central bank or Nation bank. The Bank of England serve as the central bank of the England, Central bank of Nigeria serve as the monetary control of our great nation Nigeria while the Federal Reserve serve as the central bank of United States of America popularly known as the FED RESERVE . Supervision of money supply, adjustment of interest rate, printing and distribution of currency notes and coins which serve as the nation legal tender, lender of last resort, monitoring commercial banks and other financial institutions activities are monopoly power given to central banks. In most advance countries, central banks are design to operate independently in order to protect the institution from political interference, knavery and irascibility . A nation seeking for a prosperous economy growth must have in mind putting inflation under control, low interest rate is requisite and indispensable. A vibrant monetary policies and other policies related to each bureaucracy is the key to economy growth. The monetary institutions primarily control the amount of money in circulation in order to regulate inflation, failure to bring high interest rate under control tend to reduce consumer spending and this will lead to fall in aggregate demand, reduction in aggregate demand (AD) is the root cause of low economic growth and high unemployment In order to carry every loving citizen reading...
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...Principles of Business Credit Chapter 1 - Credit: must involve exchange of values - 5 C’s of credit: character, capacity, capital, collateral, conditions - credit ( can be private or public - Credit Process: o First goes through a buyer who wants to buy a service or product o operating cycle: activities company goes through to produce and sell its goods and services o production stage: when material is converted into goods o manufacturer then sells finished goods to customers and customer pays for goods that were purchased on credit (collection stage) - Types of Credit o Public credit: government credit o Private credit: extended or used by individuals or businesses to carry on exchange of goods and services in private sector Private credit: - Investment credit - Consumer credit - Agricultural credit - Business credit - Bank credit Investment Credit: long-term borrowing of large amounts of money to finance productive assets. Primarily loans made to governments or businesses to raise money to pay for expansion modernization or public projects. - Bonds of fixed income securities (generally 10+ years) - Asset backed bond (backed by specific holdings for ex. Real estate) - Debentures (backed by financial standing, not assets) most common. - Secured bonds o Mortgage bonds o Equipment trust certificates (bonds issued to buy new...
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...direct investment when you start own business and invest your savings in the operation. A direct investment also occurs when securities are initially sold to investors in primary market. In the second markets, no funds are transferred and no new assets are created, there is only the transfer of ownership of an existing asset. The alternative to direct transfer of savings is an indirect transfer through a financial intermediary. You lend funds to the bank; the bank lends the funds to the ultimate borrower. The role of money Money: anything that is generally accepted as a means of payment. Liquidity: Ease of converting an asset into cash without loss, the depth of a financial market. Federal Reserve has the power to control the supply of money and to oversee the commercial banking system. Money supply: Total amount of money in circulation. 2 measures: M1: Sum of coins, currency, and demand deposits (checking account); M2: M1+saving accounts (70%), small certificates of deposits. The role of interest rates Interest is the cost of credit, the price paid for the use of someone else’s money. Generally, the longer the term of the debt and the riskier the debt instruments, the higher will be the interest rate. Financial markets have an analogous classification. The “money market” refers to the market for low-risk, large-denomination debt instruments that mature with 1 year. The “capital market” refers to securities with a longer-term horizon. Term structure of interest...
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...Although since the Federal Open Market Committee meeting in March 2014 economic indicators are indicating growth in economic activity. The growth was stunted in the early part of 2014 mainly due to adverse weather conditions during the winter months. This trend is reflected in the initial estimates of real GDP growth for the 1st quarter of 2014 which slightly increased by an annual rate of .1 percent compared to the 4th quarter of 2013. The growth rate shown in 2014 is compared to a 2.4 percent growth rate realized in 4th quarter of 2013. The deceleration in real GDP growth during the first quarter of 2014 is a direct result of negative contribution from exports, private inventory investments, and state and local government spending. This trend in GDP is a direct result of the federal fiscal policy established for 2014. Long term interest rates during the years after the financial crisis were intentionally maintained at very low levels. These low levels of long term interest rates enabled the economy to bounce back and experience moderate growth. During 2013, we saw interest rates begin to increase with further increases expected in the coming years. The current levels of the money supply in the United States as of March 2014 are at all-time highs. The M2 in the United States has gradually been increasing since January 2013. US stock market experienced a solid year in 2013, led by continued monetary support as a result of polices put in place by the Federal Reserve, in addition to...
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...Complexities of the U.S. Financial System Jami Christian Professor Umair Warsi Finance 100 May 4, 2013 The financial markets help to efficiently direct the flow of savings and investment in the economy in ways that facilitate the accumulation of capital and the production of goods and services. The combination of well developed financial markets and institutions, as well as a diverse array of financial products and instruments, suits the needs of borrowers and lenders and therefore the overall economy (Econ, 2005). The stock market is an economic indicator of how well the U.S. economy is doing. If investors are confident in the economy, they will buy stocks. Stocks are how companies get funded to grow larger. Usually, when someone wants to start a business, they pay for it with loans or even their own credit cards. Once they grow the company enough, they can get bank loans, or even float their own bonds to individual investors. Since the U.S. stock market is so sophisticated, it is easier in this country than in many others to take a company public. This helps the economy grow, since it provides a boost up to companies wishing to grow very large. The Federal Reserve is the nation’s central bank that works to keep the banking, financial, and payments system safe, sound and stable. It also provides financial services to the government and public. Finally, and very importantly, the Federal Reserve’s conduct of monetary policy contributes to the long run health of the...
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...$528 billion at the end of 1991. This article describes some of the important features of the commercial paper market. The first section reviews the characteristics of commercial paper. The second section describes the major participants in the market, including the issuers, investors, and dealers. The third section discusses the risks faced by investors in the commercial paper market along with the mechanisms that are used to control these risks. The fourth section discusses some recent innovations, including asset-backed commercial paper, the use of swaps in commercial paper financing strategies, and the international commercial paper markets. The author, a consultant with TKH Associates and former assistant economist at the Federal Reserve Bank of Richmond, would like to thank Timothy Cook, Bob LaRoche, Jerome Fons, and Mitchell Post for comments. The views expressed in this article are those of the author and...
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...The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States. It was created by the United States Congress to guarantee the nation a safer, more flexible and more stable monetary and financial system. Today the FED's objective is to put in place a monetary policy oriented towards a condition of: full employment, price stability and control of the long-term interest rate (Borsa italiana, 2014). The three main tools that the Fed has at its disposal to influence monetary policy are: open market operations, reserve requirements and discount rate. - Open market operations represent the most important and most flexible instrument available to the Fed to influence the amount of reserves in the banking system, and allow it to enter or absorb liquidity within the banking sector and indirectly act also on interbank rates. This tool consists of buying and selling public securities. These transactions are carried out daily, to maintain the rate on reserves in line with the target, selling and buying securities, either on a permanent or temporary basis, by absorbing or injecting liquidity into the system (Lazzarin, 2016)....
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...www.nber.org/releases The website is for the National Bureau of Economic Research. Within this website, there are publications, activities, meetings, data, people, and information on the bureau. NBER is a non- profit organization that uses many different sources to understand the economy. The research they do is so that they can understand economical issues that influence our society. The bureau is there to oversee all the effects that public policies, policy proposals and other factors have on our economy. The people that work and do research for them come from many different disciplines. These people are listed in the section entitled “Research Associates and Faculty Research Fellows.” The data provided are of that of surveys, economic releases, business cycles, macro data, industry data, international trade, etc. All is public information and can be clicked on and read about. This website serves as ongoing research into everyday economical growth. There are publications to show how different countries deal with the change in their economy. It also shows the meetings that will be taking place in the near future. Everything is kept quite concise and direct. www.bloomberg.com The Bloomberg website illustrates the most recent news and financial information. Everything on their website is the most current and up to date. The website refreshes every few seconds with updated information on anything that could possibly happen. The right...
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