Federal Reserve Paper

1115 words - 4 pages

Federal Reserve PaperSanjeet K. SinghEco/212October 25, 2010Ronda JantzFederal Reserve PaperMoney, Money, Money. What exactly is money? Where does it come from? Who regulates money? These questions are in the minds of every individual at one point of time or another. The purpose of this paper is to address what money is, the importance and value of money and where it comes from. The Federal Reserve and the role that the central bank plays in monetary policies will also be reviewed.Money is something that is normally accepted as compensation for goods and services and reimbursement of debts. It is an essential quality of money that it should be acceptable as a means of payment. The important functions of money are medium of exchange, unit of account, standard of deferred payment and store of value.The Federal Reserve System is the central banking system in the U.S. The Federal Reserve Bank consists of twelve regional banks located in different cities in the U.S. The key purpose of the Federal Reserve is to manage and regulate banks, execute monetary policy by buying and selling U.S. Treasury bonds and guide interest rates. The current chairman of the Board of Governors of the Federal Reserve is Ben Bernanke.The Federal Reserve System is in also charge of managing the countries monetary system. The Fed controls the money supply which affects the interest rates and inflation. This is done by reducing the money supply when inflation is high and increasing the money supply when rates are too high and there is little or no growth in the economy. As a part of its responsibility of administering the monetary system of a nation, the Central Bank is given the exclusive power of issuing currency notes. The Federal Reserve also executes the imperative task of being the banker to the government. The Federal Reserve carries out all fiscal transactions for the government as well as raises money for the government.The Fed's most essential duty is to make sure that sufficient money and credit are obtainable to maintain economic growth exclusive of inflation. The Fed may need to decelerate the augmentation of the money supply if there is a suggestion that inflation is threatening the purchasing power of the United States. The Federal Reserve controls the monetary policy with the utilization of three tools: the discount rate, reserve requirements and open market operations. According to the Central Bank's website, "These tools encompass (1) raising the interest rate paid on excess reserve balances (the IOER rate), (2) executing term reverse repurchase agreements (RRPs) with the primary dealers and other counterparties, (3) issuing term deposits to depository institutions through the Term Deposit Facility (TDF), (4) redeeming maturing and prepaid securities held by the Federal Reserve without reinvesting the proceeds, and (5) selling securities held by the...

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