ECON224unit 4 DB

ECON224unit 4 DB - ECON224- Unit 4 DB Cheri Bolin August 9,...

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ECON224- Unit 4 DB Cheri Bolin August 9, 2011 Provide a briefing that addresses the following: Describe when and why central banks buy either their own currency or the currency of another nation in an effort to control exchange rates. Central Bank regulates monetary policy. There are three tools of monetary policy: open market operations, changes in reserve requirements, and changes in the discount rate. Central bank can expand the money supply by: - Reducing the discount rate - Reduction in reserves requirements - Purchasing the Bonds Central bank can contract the money supply by: - Increasing the discount rate - Increasing reserves requirements - Selling the Bonds Buying of currency Central Banks may buy currency to influence the money supply. Some central banks may require that some or all foreign exchange receipts (generally from exports) be exchanged for the local currency. The rate that is used to purchase local currency may be market-based or arbitrarily set by the bank. This tool is generally used in countries with non-convertible currencies or partially- convertible currencies. The recipient of the local currency may be allowed to freely dispose of the funds, required to hold the funds with the central bank for some period of time, or allowed to use the funds subject to certain restrictions. In other cases, the ability to hold or use the foreign exchange may be otherwise limited. In this method, money supply is increased by the central bank when it purchases the foreign currency by issuing (selling) the local currency. The central bank may subsequently reduce the money supply by various means, including selling bonds or foreign exchange interventions. What did the central banks do to stabilize the financial systems in 2007&2009? Major stimulus programs had been announced in the U.S., China, Japan, Germany, the U.K. and other countries. Monetary policy had been eased, with policy interest rates approaching zero in many countries and quantitative easing being attempted by a number of central banks. New facilities to help stabilize the credit markets are being developed by the Federal Reserve and other central banks almost on a weekly basis. And there is recognition, at least in some of the major countries, of the need to coordinate their debt issuance so as not to de-stabilize the financial markets. This latter could be a major challenge in light of the unprecedented volume of borrowing coming to market. (1818France, 2010)
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In an effort to stabilize the financial system how much money, in U.S. dollar equivalent and as a percentage of the country's GDP, did the European Central Bank, Bank of England, Bank of China, and the Federal Reserve put into the economy in 2008 and 2009? As per Wikipedia, "The response of the U.S. Federal Reserve, the European Central Bank, and
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ECON224unit 4 DB - ECON224- Unit 4 DB Cheri Bolin August 9,...

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