Finance Sample Essay on The Fed and Monetary policy

The Fed and Monetary policy

Financial policy refers to activities that are boarded by Fed to control credit and sum of money in US economy. Change in quantity of the credit affects the rates of interest in the economy. If there is reduction in the rates of interest, a lot of firms and individuals will seek loans to boost the economy.

Fed is popularly referred to as the Federal Reserve System.  It is a banking system in America that was approved by the CBK.  The responsibility of Fed is to ensure that there are enough funds to enhance development in the economy. This form of growth does not require incorporating inflation. Another duty of Fed is to intervene and reduce the supply of money. This is to regulate purchasing power to reduce inflation. The three approaches that Fed incorporates in its operations include open market operations, discount rates and reserve needs.

Operations in the open market revolve around buying and selling of government securities in America. In this case, Fed buys security from a public based market. Clearly, the financial institutions that are incorporated in these sales benefit from the reserve accounts. It further makes banks to have plenty of funds hence raises their capability to offer loans with low rates of interest. As a result, it motivates people and firms to borrow and facilitates flow of cash. The discount rates reflect rates of interests that Fed uses to impose charges on financial companies.

It incorporates borrowing of loans that lasts on a certain time frame. Clearly, the board of governors controls the rates to motivate financial firms to venture in activities. Conversely, the reserve requirement is demanded by law to maintain its deposits. Their transacting procedure benefits financial institutions by guiding them in their reserve accounts.


Work Cited

Federal Reserve Bank of San Francisco. How the Fed Guides Monetary Policy. 2011. Web.1

May. 2013.  < >

Federal Reserve Bank of Dallas. The Fed and Monetary Policy. Web. 1 May. 2013.   

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