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october 11 - 3 Open market operations open market refers to...

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Karina Santana October 11, 2011 MONETARY POLICY TOOLS GENERAL CREDIT CONTROL TOOLS 1. Reserve requirements a. The percentage b. The fed determines which of their cash assets are eligible to keep as a reserve assets b.i. Reserve accounts at the federal reserve b.ii. Any cash you have in hand c. The fed determines “reservable” liability ***Cannot use money that they have store in another bank ***the fed only has to keep reserves against demand deposits 2. Discount rate: interest rate the federal reserve charges banks a. Most banks do not like to borrow from the fed because they are afraid that their borrowing from the fed might be misperceived and in term have all of their consumers withdrawing their money and thus fail *”PENALTY RATE”- THE FED RAISE THE INTEREST RATE BECAUSE THEY ARE USE TO BANKS BORROWING FROM OTHER BANKS AND NOT FROM THEM * Banks borrow from other banks in the FEDERAL FUNDS MARKET ***discount rates and reserve requirements have nothing to do with monetary policy
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Unformatted text preview: 3. Open market operations: open market refers to 20 dealer firms(wall street) markets refers to the fed buying and selling US government securities(treasury bills, notes, bonds) Selective credit control; selecting a sector to control For example: In ASIA they usually control the import and export sector and leave consumer spending alone Stock market marginal requirement **Marginal requirement tells the bank what percent of stocks the bank can use For example: if I was to go into a bank for a $100,000 loan to purchase stocks and as a collateral I tell the bank that they can take the stocks than they will tell me that they can only use 50% of the stocks and thus they can only lend me $50,000 and I have to come up with the other half “QUANTATIVE EASING”- WHEN THE FED GOES INTO THE MARKET AND BUYS FINANCIAL ASSETS...
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