Study Guide Test #2 - Chapter 9(6 questions Structure of...

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Chapter 9 (6 questions) Structure of the Federal Reserve System: The 12 Federal Reserve Banks (FRB): Each of the 12 districts have a main Fed Bank and at least one branch office. Quasi-public (part private, part government) – owned by member commercial banks in the district. Member banks elect 6 directors, while 3 are appointed by BOG for a total of 9. 9 appoint president and other officers of the FRB. Directors represent professional banks, prominent business leaders, and public interests (3 from each group). Board of Governors (BOG) of the Federal Reserve System: 7 members, including the chair, appointed b7y the president of the US and confirmed by the senate. Vote on the conduct of open market operations, sets reserve requirements and effectively control the discount rate, and chair advises president of USA on economic policy. Federal Open Market Committee (FOMC): 7 members of BOG + Presidents of FRB of NY and 4 other FRBs. Meets 8x/yr. and makes decisions regarding the conduct of open market operations and the setting of the policy interest rate, the federal funds rate – which is the interest rate on overnight loans from one bank to another. Federal Advisory Council: 12 members (bankers) one from each district.
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Member Banks (around 2,000): National banks (chartered by the Office of the Comptroller of the currency) are required to be members. State commercial banks may elect to join. What is independence? Instrument independence is the ability of the central bank to set monetary policy instruments and goal independence is the ability of the central bank to set the goals of monetary policy. The fed has both types of independence and is free of the political (presidential and congressional) pressures in pursuing its goals that influence other government agencies. The 14yr non-renewable limits incentives to grant favor with either political group. The similarity and differences between Federal Reserve System and European Central Bank: ECB is similar to the FRS but the budgets of the FRS are controlled by the BOG, but National Central banks control their own budgets and the budget of the ECB = ECB has less power than BOG in FRS. The monetary operations of the ECB are not centralized as FRS. In contrast to the FRS, the ECB isn’t involved in supervision and regulation of financial institutions – these tasks are left to the individual countries in the European Monetary Union. All decisions are made by consensus – no voting.
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Chapter 10 (7 questions) Federal Reserve’s Balance Sheet: Assets Liabilities Government Securities Currency in Circulation Discount Loans Reserves Liabilities: Monetary liabilities of the fed involve 1) currency in circulation – the physical currency in the hands of the public. 2) Reserves, monetary base – all bank deposits with the Fed. The Fed sets the required reserve ratio. Any reserves deposited with the Fed beyond this amount are excess reserves. 3) The sum of these two items is the monetary base.
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