3LectureCentralBankingf

3LectureCentralBankingf - Central Bank Functions Basic...

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1 Central Bank Functions Basic Operations Art of Conducting a Monetary Policy Money Creation thru Banking System
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2 1. Functions Provide $ to banks in order to meet unexpected withdrawals ►prevent bank run and increase public confidence Supervise all banks ► ensure sound banking in order to increase public confidence Acts as a bank for banks ►Clear checks Regulate the flows of Money ► promote stability and growth Too much money Inflation Too little money Recession
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3 2. BOC and Creation of Money Case 1 Open Market Operations Example : BOC buys $100 of govt sec from banks B. O. C Gvt Sec +100 Res +100 Banks Res +100 Gvt Sec -100
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4 Expansionary vs Contractionary Policy As Reserve increase ►Money Supply goes up Easy Money or Expansionary Monetary Policy Why? Banks make more loans or As BOC buys govt securities ► Price goes up and interest rate decreases
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5 Case 2 Selling $100 of govt sec with an agreement to buy back BOC Gvt Sec -100 Res -100 Banks Res -100 Gvt Sec +100 As Res MS As Sell, Price rate Tight Money or Contractinary Monetary Policy
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6 Case 3 BOC makes $100 DL to bank A BOC Banks Loan +100 Res +100 Res +100 DL +100 As Res MS
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This note was uploaded on 02/28/2012 for the course FINE 442 taught by Professor Larbihammami during the Spring '12 term at McGill.

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3LectureCentralBankingf - Central Bank Functions Basic...

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