money
...y policy making. b) To decentralize policy making authority. c) The principal policy making body within the Federal Reserve System. Q.7- Discuss the major policy tools that the fed. Can use to promote the overall health of the economy, what is the most widely used tool? Open Market Operation: The buying and selling of government securities by the fed. To change the important monetary policy tool at the fed’s disposal operations. Monetary Policy: The attempt by the fed to stabilize the economy and to ensure sufficient money and credit for an expanding economy. Discount Rate: The rate depository institutions are charged to borrow reserves from the fed. Required Reserve: The amount of reserve assets that against outstanding checkable deposit liabilities. Required Reserve Ratio: The fraction of deposit liabilities that must be held as reserve assets. Q.13- How does each of the following affect the money supply? a) The fed. lower the required reserve ratio. b) The fed. lower the discount rate. c) The fed. buys government securities. a) Encourage bank lending this seemingly small change can have a powerful effect on the supply of money and the cost of availability of credit. b) Not only deposits go down, but it also loses reserves equal to the full amount of withdrawal, the depository institution may be caught short of reserves as a last resort, may barrow the needed reserves from the fed. c) If there is too much money, the fed. raises the discount rate therefore loans to consumers are at the higher interest. Pg.122 Q.1- Distinguish between primary and secondary markets and between money and capital markets. The distinction between the primary and secondary market is somewhat conceptual, in practice the selling of new securities in the primary markets by the frims issuing them and the trading of older securities in this theory is that the lack of smoothly functioning. Secondary market will inhibit the financial of planning on deficits in the primary market. The money market includes those markets where less are traded. The capital market includes those markets where securities with original maturity of more than one year are traded. Pg.123 Q.8- Define commercial paper; negotiable certificates of deposit repurchase agreements, banker’s acceptance, federal funds, and Eurodollars, in what way are they similar? And in what ways are they different? Commercial paper: These are short terms debts instruments issue to large corporations to businesses. Negotiable Certificates of deposit: Sold by banks, pays annual interest, to fund educational needs. Repurchase Agreement: Short terms agreement in which the seller, sells a government, security to a buyer and simultaneously agrees to buy it back on a later date at a higher price. Banker’s Acceptance: Money market i...