chapter 4 note - Omar M. Al Nasser, Ph.D., MBA. Visiting...

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Omar M. Al Nasser, Ph.D., MBA. Visiting Assistant Professor of Finance School of Business Administration University of Houston-Victoria Email: alnassero@uhv.edu Chapter 4 Functions of the Fed Outline Organization of the Fed Federal Reserve District Banks Member Banks Board of Governors Federal Open Market Committee (FOMC) Advisory Committees Integration of Federal Reserve Components How the Fed Controls Money Supply Open Market Operations Role of the Fed’s Trading Desk How Open Market Operations Affect All Interest Rates Adjusting the Reserve Requirement Ratio Adjusting the Fed’s Loan Rate Factors Considered When the Fed Controls the Money Supply Technical Factors Which Form of Money to Control? Global Monetary Policy A Single Eurozone Monetary Policy Global Central Bank Coordination Key Concepts 1. Describe the role and the organization of the Fed. 2. Explain how monetary policy tools are used by the Fed to control economic conditions. 3. Explain why the Fed’s monetary policy can not ignore international conditions.
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POINT/COUNTER-POINT: Should There Be One Global Central Bank? POINT: Yes. One global central bank could serve all countries in the manner that the European Central Bank now serves several European countries. If there was a single central bank, there could be a single monetary policy across all countries. COUNTER-POINT: No. A global central bank could create a global monetary policy only if there was a single currency used throughout the world. Moreover, all countries would not agree on the monetary policy that is appropriate. WHO IS CORRECT? Use the Internet to learn more about this issue. Offer your own opinion on this issue. ANSWER: While there may be some benefits if the monetary policy was consistent among countries, it would be impossible to get agreement among all countries about the policy to be used. Countries would not want to give up their power to control their own money supply. Questions 1. The Fed. Briefly describe the origin of the Federal Reserve System. Describe the functions of the Fed district banks. ANSWER: Two attempts to establish a central bank in the 1800s had failed. In the late 1800s and early 1900s, several bank panics occurred, which encouraged another attempt. In 1913, the Federal Reserve Act was passed and specified 12 districts across the United States, as well as a city in each district where a Federal Reserve district bank was to be established.
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This note was uploaded on 09/21/2011 for the course FINANCE 3321 taught by Professor Jianjundu during the Fall '11 term at University of Houston-Victoria.

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chapter 4 note - Omar M. Al Nasser, Ph.D., MBA. Visiting...

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