DSST Money & Banking Part 1

Target m2 m3 are intermediate targets wider interest

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target, M2 & M3 are intermediate targets, Wider interest rate ranges and financial stability are constraints, and  policy determinants primarily include inflation, foreign exchange rates, and unemployment.   Academic Community  has criticized this strategy because of its lack of apparent close connection of borrowed reserves to the money  supply or to inflation rates, or GNP. FED as Lender of Last Resort : The FED is ready and willing to step in whenever it is deemed necessary to stop  major financial distress from continuing.  The FED has done so several times including 1970, 1974, 1984, and  1987, (and more recently of course). History of the Fed – Fed carries out:  Supervises and Regulates Many Commercial Banks, Provides bank services to depository institutions /  Treasury, and conducts monetary policy. Fed Structure Board of Governors   (7 people nominated by President and confirmed by Senate for 14 year terms, except  Chairman which is appointed by President for a 4 year term) supervises  12 District Federal Reserve Banks which in turn supervise, regulate, and provide services to member banks and other depository institutions.  Member banks earn a nominal 6% fixed return on their stock  and vote on six of the nine directors of the district  banks.  The other three are appointed by the Board of Governors.  In addition to its supervision of district Federal  Reserve Banks, the Board of Governors wields several important tools of monetary policy: it sets reserve  requirements, it sets margin requirements, it reviews and determines discount rates, it fills 7 of the 12 seats on the  Open Market Committee. Systemic risk  is the risk that some depository institutions may not be able to meet their credit agreement terms  because of a failure by other institutions to settle transactions that may or may not be related. FOMC  is comprised  of 5 Fed Presidents and the 7 Fed Governors  and meets every 6 weeks to determine the  policy guidelines for the next 6-8 weeks to be followed by the account manager who is responsible for the day-to- day implementation of FOMC policy.   The FOMC directive : Statistical projections of reserves and the money  supply by the manger’s staff at the New York Federal Reserve Bank, Statistical projections of reserves and the  money supply by the staff of the Board of Governors, Treasury estimates of its receipts and expenditures for the  day, Discussions with the government securities dealers, and discussions with a subcommittee of the FOMC.
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