DSST Money & Banking Part 1

Weekly main refinancing operations and the monthly

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weekly "main refinancing operations" and the monthly "longer-term refinancing operations" provide liquidity to the financial  sector, while ad-hoc "fine-tuning operations" (in the form of reverse or outright transactions, foreign exchange swaps and  the collection of fixed-term deposits) aim to smooth interest rates caused by liquidity fluctuations in the market and  "structural operations" are used to adjust the central banks' longer-term structural positions vis-a-vis the financial sector. The  Swiss National Bank  currently targets the 3 month Swiss franc  LIBOR  rate, and borrows or lends Swiss francs  directly with Swiss banks (in other words, without using repos) on an almost daily basis. These borrowings or loans are  typically made for 1 day or 1 week, but may be as long as 1 month. How the monetary base would be affected if the fed buys government bonds:  when the FED uses Open Market  Operations to buy bonds, the monetary base expands (money is increased), rates go down (both FED funds and  Consumer Interest Rates), and economic activity is expanded.  If the FED sells bonds, it debits dealer banks and the  monetary base is reduced (money is reduced), rates rise (both FED funds and Consumer Interest Rates), and economic  activity is also reduced.  When Fed purchases securities it supplies reserves and stimulates banks to lend more money  which would stimulate economic activity = MONEY SUPPLY goes up, When the Fed SELLS securities (bonds) it reduce  reserves, banks don’t lend, and economic activity is reduced = MONEY SUPPLY goes down. Inflation/deflation and how the government can affect it. –  Fed can sell securities which tighten bank lending and has  the effect to raise rates and slow the economy – this would help to curb inflation at least initially.  To curb deflation, the 
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opposite would need to happen – Fed buying bonds which would increase the money supply and bank reserves so that  they would lend more and expand the economy. Inflation : Inflation causes an increase in the demand for loanable funds and a decrease in the supply of loanable funds,  and thus higher interest rates. In economics, inflation is a rise in the general  level of prices  of goods and services in an economy over a period of time. [1]   The term "inflation" once referred to increases in the money supply ( monetary inflation ); however, economic debates  about the relationship between  money supply  and price levels have led to its primary use today in describing price  inflation.
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