Chapter 10 Notes - BMGT341 Chapter10Notes FederalReserve...

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BMGT341  Chapter 10 Notes Federal Reserve:  monetary liabilities include currency in circulation as well as reserves, and  monetary assets: government securities and discount loans What are open market operations? Purchases and sales of government securities  and commercial paper by a central bank in an effort to regulate money supply When central bank buys open reserves on the market, it increases the  reserves of commercial banks Advantages: Fed has complete control, it is flexible and precise, easily  reversed, and implemented quickly  Trading desk uses two types of transactions to implement strategy: 1. Repurchase agreements (Fed purchases securities but agrees to sell them  back within about 15 days) 2. Matched sale purchase transactions (A reverse repro, Fed sells securities,  but agrees to buy them back) Discount policy: Fed’s discount loans are primarily of three types:  1. Primary Credit (policy where healthy banks are permitted to borrow as they
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