Monetary Policy in the US Assignment Example | Topics and Well Written Essays - 1000 words

Monetary Policy in the US - denomination ExampleIn order to overcome this problem, it is recommended that the indemnity implementation shall be incremental in temperament with built in mechanisms to set threshold levels to trigger automatic responses where policy do not depend to deliver the desired monetary policy outcomes.Open commercializeplace operations is one of the most much used tools that is being exercised by any central bank including FED. Open market operations essentially involve the acquire and selling of securities in open market in order to achieve the distinguishable monetary policy outcomes. Open Market Operations tend to provide an opportunity to FED to expunge the banking system in following manner1. Affecting vex arranges through open market operations, FED basically mop out or in the liquidity within the banking system. By buying the securities, FED basically increase the supply of loanable finances thus interest rates tend to go down for short term period whereas by selling the securities, the liquidity is decreased which than increase the interest rates.2. Controlling the volume of Credit Through open market operations, FED basically increase or decrease the volume of credit as it either suck in the excess liquidity from the market or pump in new funds into the system. Through both methods, the overall extent of loanable funds can be increased or decreased in order to achieve the monetary policy objectives of the firm.3. Open market operations also tend to affect the bank deposits because by floating securities in the market, FED basically take out funds from the banks which indirectly affect the deposits of the banks.Banks are required to cargo area a certain percentage of their funds as reserve with the FED in order to foregather the uncertainties. FED can increase or decrease this percentage with the passage of time and according to the stinting situation. Further banks can also borrow from the one window facility at th e FED and the rate charged by FED on such funds is called discount rate.