So as to finance the referred large-scale enterprises which were required long time ago, the stock holder corporation emerged and the business organization happened to be dominant. The corporations were combined into trusts and this was possible after the creation of firms which were single from the firms which were competing thus referred as monopolies. Thus the improvement in trading and also in financial sector played an important role of boosting industrial sectors. The other factor is the agricultural prowess which is associated in the country. Taking into consideration 17th century, Pilgrims, Puritans, Quakers that were fleeing persecutions towards the Christians in Europe, entered the US ferry which transported domestic animals such as cows, plowshares, guns and pigs.
Some of the colonists and the immigrants from European settled there before the growers of subsistence crops, such as oats, corn, wheat and rye they also rendered some maple syrup and potash that were meant for trading. Taking into consideration the temperate climates of the south, all the large scale farms grew variety of crops such as tobacco, rice, sugarcane and cotton which required the imported African and native slave labor. The US former farmers were not self-sufficient considering that they relied mostly on other farmers, all the specialized merchants and the craftsmen enhanced the provision of tools and processing of what was harvested and later taking them to the market.
The Reserve requirement refers the funds which are held by the depository institutions against some of the existing specified liabilities. In consideration to the limit provisions of the law, the board of governors that are ruling happens to have a sole authority on the variations which are contained in reserve requirements. The Depository institutions have the responsibility of holding the reserves in cash form and also the deposits in the Federal Reserve Banks.
Economies in the universe happen to be in the middle of an e-commerce revolution. The revolution helps to get new techniques of carrying out transactions and payments and by doing this it helps to bring up new monies (monies) of which at the end of the day, it will displace the existing money, currency and the bank deposits. To be able to assess the possibility of having a future impact on the e-money, it is necessary to be in a position to differentiate between to types. The first happens to be the e-tail money and the second happens to be the e-settlement money and the e-tail money replaces the currency and the demand deposits replace the traditional purposes. Considering the e-settlement money, it replaces the utilization of demand deposits for the purpose of discharging private debts and also replaces the utilization of central bank reserves due to the purpose of settling clearing balances amongst the banks.
The revolution of e- money fits in the history of money as it is well told by the Austrian economists. The approach of the Austrians puts emphasize on the endogeneity which is of the "form" of money which it changes according to the responses of technical innovations and the competition in the market. The e- money promises to change both the working of the bank systems and the form of money. By doing this it may challenge the ability of monetary authority's to set the interest rates and make financial markets stable. The American central bank had little public support so that it could operate effectively and this made them to set up a system of decentralization which had 12 Federal Reserve banks all over in the country.
Federal Reserve has an influence on the interest rates of which affected the key interest-rate in the sensitive sectors of economy such as autos, investments and housing. Specifically Federal Reserve has an influence on the interest rates since it manipulates the reserves. The short-term rates happen to be directly influenced by the federal policy since its reserves operation included purchases and the sale of the short-term government securities that has an influence on the bank reserves. However the long-term rates are influenced by the monetary policy. Other influences, for example, the long-term rates are also affected by the changes in the inflation and Fed policy expectations. The only way that the monetary policy would sustain low long-term rates would be to promote the price stability and this would help to remove the influence of inflationary expectations and also uncertainty premiums. Definitely, the congress had the reasons of ensuring the provision of low long-term rates when it comes to this.
They administer discounts lending to each bank and they have five votes out of the twelve on the FOMC which makes decisions concerning the Open Market Operations (the fed's main policy tool).
Question 6 (A)
The Federal Reserve has the responsibility of implementing the United States monetary policy through setting the conditions in the balance markets that the depository institutions own at the Federal Reserve Banks. The target or operating objectives used in affecting the desired conditions in the market have deferred over the years. The FOMC had once looked forward to achieve certain number of balances until recently when it was able to set interest rate targets at which these balances can trade between the depository institutions and Federal Fund Rate.
By imposing reserve requirements, extension of credit through discount window facilities, conduction of open market operation and giving the depository institutions the permit of holding the contractual clearing balances, the Federal Reserve Bank exercises control over the supply and the demand of Federal Fund Rate as well as the Federal Reserve Balances. The Federal fosters both the monetary as well as the financial conditions in line with its objectives of monetary policy through its ability to control Federal Funds Rate.
Question 6 (B)
The United States central bank has twelve Federal Reserves with reserve banks in each district principal commercial city. A board of governors situated in the Washington, D.C and various advisory committees and councils supervises over the system .All national banks are required to join the system according to the Act of 1913 of Federal Reserve Act. The fractional reserve requirements for the U.S. banking systems are set by the original act. The central bank allows all the district banks to set their desired discount rates charged on member banks loans.
The present Federal Reserve was as a result of Act 1935 of the Federal Reserve, which gave mandate to the board to specify reserve requirements within various defined limits. The act also created Federal Reserve Open Market Committee, responsible for driving operations in various financial markets which either increase or decrease reserve amounts in the system. Whenever the Federal Reserve thinks of easing the monetary policy, it uses Open Market Operations thus increasing reserve amounts through purchasing the financial assets. On the other hand it can sell the financial assets to tighten the monetary policy.
Question 6 (C)
The discount rate and the requirements are set by Board of Governors. On the other hand the Open Market Operations are directed by the FOMC. However the FOMC also helps in decision making on discount rate and the requirements.
The most crucial members of the financial market worldwide are the government authorities with the responsibility of the monetary policy and the central banks. The central bank controls the credit amount, the money supply and the interest rates, which have an effect on the aggregate output, inflation and the financial markets. In understanding the role of the central bank in the economy as well as the financial market it is necessary to understand the works of these organizations.
Both organizations have almost similar organization. The Fed is built up of; Board of Governors, who are represented from both the private and the public industries and the twelve regional banks. Looking into the ECB, the national central bank is similar in its operation to the regional banks, while the executive board in the ECB is similar to the Board of Governors. However, some structural differences exists, Firstly, the regional banks' budget who are members of the Fed is determined by the Board of Governors , whereas the Europe based national central banks are responsible of the financing of the Executive Board. Secondly, whereas the 7 Board of Governor members have the majority vote in the twelve FOMC members, the 15ECB national central banks have a majority vote in the Council of Governors. Lastly the, the ECB has less involvement in the regulation and supervision of the financial institutions as compared to Fed. ECB is politically independent whereas Fed has goal independence. Fed has the independence of pursuing low inflation and low unemployment, while the mandate of ECB is ensuring price stability. Also the ECB is the less likely to be suspected of political instability, since a change in the structure of the ECB requires a change of the Maastricht Treaty in unison by all signatories whereas a change in the organization or structure of the Fed requires only a simple majority to be passed in the congress.
The Fed governors have a term of 14 years. One governor may come up with a decision which may be unpopular to the legistrative branches and the executive. Also, the presidents of the Federal Reserves are chosen by member banks from all regions. Thus this may provide insulation from political processes which are not present from other US government agencies.
The congress poses the threat of taking control over Feds budget. Presently, Feds finance discount lending earns it enough revenue. The excess is returned to the treasury. Congress could gain control over the Fed by instructing it to finance all its operations outside the government's budget. The congress could gain control over the monetary policy if they had the ability to preside over the purse strings. The threat by the congress to take over the finances owned by Feds may alter with the monetary policy.