the federal reserve system purposes functions l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
THE FEDERAL RESERVE SYSTEM & PURPOSES FUNCTIONS PowerPoint Presentation
Download Presentation
THE FEDERAL RESERVE SYSTEM & PURPOSES FUNCTIONS

Loading in 2 Seconds...

play fullscreen
1 / 46

THE FEDERAL RESERVE SYSTEM & PURPOSES FUNCTIONS - PowerPoint PPT Presentation


  • 384 Views
  • Uploaded on

THE FEDERAL RESERVE SYSTEM & PURPOSES FUNCTIONS “ TIME IS MONEY …” Patrick Dede Phirun Nop Sayak Bhattacharya The Federal Reserve System Structure of the system Monetary Policy and the Economy The Implementation of Monetary Policy The Federal Reserve in the International Sphere

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'THE FEDERAL RESERVE SYSTEM & PURPOSES FUNCTIONS' - niveditha


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
the federal reserve system purposes functions
THE FEDERAL RESERVE SYSTEM &PURPOSES FUNCTIONS
  • “TIME IS MONEY…”
  • Patrick Dede
  • Phirun Nop
  • Sayak Bhattacharya
the federal reserve system

The Federal Reserve System

Structure of the system

Monetary Policy and the Economy

The Implementation of Monetary Policy

The Federal Reserve in the International Sphere

The Federal Reserve in the U.S. Payments System

the federal reserve system3

THE FEDERAL RESERVE SYSTEM

Federal Reserve System, the central bank of the United States, was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. As a central Bank, the FED is independent butsubject to oversight by the U.S. Congress.

ben s bernanke chairman
Ben S. Bernanke Chairman

Ben ShalomBernanke was sworn in

on February 1, 2006, as Chairman

and a member of the Board of

Governors of the Federal Reserve

System. Dr. Bernanke also serves as

Chairman of the Federal Open

Market Committee, the System's

principal monetary policymaking

body. He was appointed as a

member of the Board to a full 14-

year term, which expires January 31,

2020, and to a four-year term as

Chairman, which expires January

31, 2010.

list of former president of the us fed
List of former president of the US FED
  • 10 août1914 - 9 août1916 : Charles S. Hamlin
  • 10 août1916 - 9 août1922 : William P. G. Harding
  • 1er mai1923 - 15 septembre1927 : Daniel R. Crissinger
  • 4 octobre1927 - 31 août1930 : Roy A. Young
  • 16 septembre1930 - 10 mai1933 : Eugene Meyer
  • 19 mai1933 - 15 août1934 : Eugene R. Black
  • 15 novembre1934 - 31 janvier1948 : Marriner S. Eccles¹
  • 15 avril1948 - 31 mars1951 : Thomas B. McCabe
  • 2 avril1951 - 31 janvier1970 : William McChesney Martin Jr.
  • 1er février1970 - 31 janvier1978 : Arthur F. Burns
  • 8 mars1978 - 6 août1979 : G. William Miller
  • 6 août1979 - 11 août1987 : Paul Volcker
  • 11 août1987 - 31 janvier2006 : Alan Greenspan²
  • 31 janvier2006 - aujourd'hui : Ben Bernanke
structure of the system
Structure of the System
  • The Board of Governors of the Federal Reserve System (7 members + 12 Reserve Banks presidents)
  • The Federal Open Market Committee

(7 member of the BoG + 5 Banks Presidents)

  • Federal Reserve Banks
    • Currency and Coin
    • Check Processing
    • Wire Transfers
    • Automated Clearinghouses
  • Board of Directors
duties of the federal reserve
Duties of the Federal Reserve

Today, the Federal Reserve’s duties fall into four general

areas:

  • conducting the nation’s monetary policy
  • supervising and regulating banking institutions
  • maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
  • Providing financial services to depository institutions
monetary policy and the economy
MONETARY POLICY AND THE ECONOMY

Goals of monetary policy are “to promote

effectively the maximum employment, stable

prices, and moderate long-term interest rates.”

  • Stable prices: Reduce the inflation
  • Full Employment:
  • Moderate the long term rate
slide12
CPI:+0.8% in Nov 2007
  • Unemployment Rate:4.7% in Nov 2007
  • Payroll Employment:+94,000(p) in Nov 2007
  • Average Hourly Earnings:+$0.08(p) in Nov 2007
  • PPI:+3.2%(p) in Nov 2007
  • ECI:+0.8% in 3rd Qtr of 2007
  • Productivity:+6.3% in 3rd Qtr of 2007
  • U.S. Import Price Index:+2.7% in Nov 2007
how monetary policy affects the economy
How monetary policy affects the economy ?

The FOMC sets the federal funds rate at a level it believes will

foster financial and monetary conditions consistent with achieving

its monetary policy objectives.

“If the economy slows and employment softens, policy makers

will be inclined to ease monetary policy to stimulate aggregate

demand.”

A change in the federal funds ratecan set off a chain of

events that will affect :

  • short-term interest rates (T bills and Commercial papers),
  • longer-term interest rates (T notes, corporate bonds, fixed-rate mort­gages ),
  • The foreign exchange value of the dollar, and stock prices.
the instruments of the monetary policy
The FED exercises this control by influencing the demand for and

Supply of these balances through the following means:

Open market operations

Reserve requirements

Contractual clearing balances

Discount window lending

The Instruments of the Monetary Policy
limitations of monetary policy
Limitations of Monetary Policy

On the demand side,

The US government influences the economy through changes in

taxes and spending programs, which typically receive a lot of public

attention and are therefore anticipated.

On the supply side,

The Subprime Crisis, disruptions in the oil market that reduce supply,

agricultural losses, and slowdowns in productivity growth are

examples of adverse supply shocks.

guides to monetary policy
Guides to monetary policy

Monetary Aggregates

  • M1:
      • Currency (and traveller’s checks)
      • Demand deposits
      • Similar interest-earning checking accounts
  • M2:
      • M1
      • Savings deposits and money market deposit accounts
      • Small time deposits
      • Retail money market mutual fund balances
  • M3:
      • M2
      • Large time deposits
      • Institutional money market mutual fund balances
      • Repurchase agreements
      • Eurodollars
slide17

Guides to monetary policy (2)

Interest Rates have frequently been proposed as a guide to

policy, not only because of the role they play in a wide variety

of spending decisions but also because information on interest

rates is available on a real-time basis.

guides to monetary policy 2
Guides to monetary policy (2)

The Taylor Rule:If inflation is picking up, the Taylor rule

prescribes the amount by which the federal funds rate

would need to be raised or, if output and employment are

weakening, the amount by which it would need to be

lowered.

Foreign Exchange Rates: Exchange rate movements are

an important channel through which monetary policy

affects the economy, and exchange rates tend to respond

promptly to a change in the federal funds rate.

3 the implementation of monetary policy
3. The Implementation of Monetary Policy

Federal Reserve Balances

The Federal Reserve influences the economy through the market for balances that depository institutions maintain in their accounts at the Federal Reserve Banks.

Demand for

Supply of

measures of aggregate balances
Measures of aggregate balances

Billions of dollars; annual averages of daily data

consolidated blanace sheet of the federal reserve banks
Consolidated Blanace Sheet of the Federal Reserve Banks

December 31, 2004 (Millions of dollars)

controlling the federal funds rate
Controlling the Federal Funds Rate

Open Market Operation

Required Reserve Balances

Contractual Clearing Balances

Discount Window

Lending

reserve requirements
Reserve Requirements
  • Depository institutions maintain a fraction of certain liabilities in reserve in specified assets.
  • The Fed can adjust reserve requirements by
    • Changing the required reserve ratios
    • The liabilities to which the ratios apply
    • Or both.
open market operation
Open Market Operation

Need to be able to

Buy and sell quickly

At its own convenience

In whatever volume may be needed

The U.S. Treasury Securities market is the broadest and most active of U.S. financial market.

intended federal funds rate change and level
Intended federal funds rate Change and level

Change (basis points)

DateIncreaseDecreaseLevel (percent) 2007December 11 ... 25 4.25

October 31 ... 25 4.50

September 18 … 50 4.75

2006June 29 25 ... 5.25

May 10 25 ... 5.00

March 28 25 ... 4.75

January 31 25 ... 4.50

contractual clearing balance
Contractual clearing balance

A contractual clearing balance is an amount that a depository institution agrees to hold at its Reserve Bank in addition to any required reserve balance. In return, the depository institution earns implicit interest, in the form of earnings credits, on the balance held to satisfy its contractual clearing balance.

discount window lending
Discount Window Lending
  • The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window.
  • Three discount window programs offered:

1. Primary Credit

2. Secondary Credit

3. Seasonal Credit

discount rate
Discount Rate

http://www.frbdiscountwindow.org/historicalrates.cfm?hdrID=20&dtlID=52

Accessed 18/12/2007

the federal reserve in the international sphere
The Federal Reserve in the International Sphere

The U.S. economy and the world economy are linked in many ways. The U.S. dollar, which is the currency most used in international transactions, constitutes more than half of other countries’ official foreign exchange reserves. U.S. banks abroad and foreign banks in the United States are important actors in international financial markets.

The activities of the Federal Reserve and the international economy influ­ence each other.

international linkages
International Linkages

The Federal Reserve’s actions to adjust U.S. monetary policy are designed to attain basic objectives for the U.S. economy. But any policy move also influences, and is influenced by, international developments.

slide34

International Linkages

US monetary policy actions influence exchange rates

The dollar’s ex­change value in terms of other currencies is therefore one of the channels through which U.S. monetary policy affects the U.S. economy.

slide35

International Linkages

When interest rate increases,

  • The value of the dollar will rise.
  • The price in foreign currency of US goods traded on world market will rise
  • This will lower the dollar price of goods imported into the US
slide36

Foreign Currency Operations

The Federal Reserve conducts foreign currency operations—the buying and selling of dollars in exchange for foreign currency—under the direction of the FOMC, acting in close and continuous consultation and cooperation with the U.S. Treasury, which has overall responsibility for U.S.

slide37

Foreign Currency Operations (2)

  • The purpose of Federal Reserve foreign currency operations is the changes in the international monetary system.
  • The most important of these changes was the transition in the 1970s from a system of fixed exchange rates to a system of flexible (or floating) exchange rates for the dollar in terms of other countries’ currencies.
slide38

Foreign Currency Operations (2)

Sterilization

  • The process of a central bank or federal reserve insulating itself from the foreign exchange market to counteract the effects of a changing monetary base.
slide39

Foreign Currency Operations (3)

Sterilization

A purchase of foreign currency by the Federal Reserve increases the supply of balances when the Federal Reserve credits the account of the seller’s depository institution at the Federal Reserve. Conversely, a sale of foreign currency by the Federal Reserve decreases

international banking
International Banking

Moreover, international banking institutions are important vehicles for capital f lows into and out of the United States.

The international role of U.S. banks has a counterpart in foreign bank operations in the United States. U.S.

the federal reserve in the u s payments system
The Federal Reserve in the U.S. Payments System

“By creating the Federal Reserve System,

Congress intended to eliminate the severe

financial crises that had periodically swept

the nation, especially the sort of financial

panic that occurred in 1907.”

financial services
Financial Services

The U.S. payments system is the largest in the world

The Federal Reserve therefore performs an important role as an

intermediary in clearing and settling interbank payments.

Settlement Process:

  • Debiting the accounts of the depository institution making the payment
  • Crediting the accounts of the depository institutions receiving the payment

As the U.S. central bank, The FED is

  • Immune from liquidity problems—not having sufficient funds to complete payment transactions—
  • And credit problems that could disrupt its clearing and settlement activities.
financial services43
Financial Services

The Federal Reserve plays an important role when the Treasury needs to raise money to finance the government or to refinance maturing Treasury securities.

  • International Services

As the central bank of the United States, The FED provide several

types of services to these organizations, including maintaining

non-interest-bearing deposit accounts (in U.S. dollars), securities

safekeeping accounts, and accounts for safekeeping gold.

federal reserve intraday credit policy
Federal Reserve Intraday Credit Policy

Each day, the Reserve Banks process a large number of payment

transactions resulting from the Banks’ role in providing payment

services to depository institutions.

The Reserve Banks extend intraday credit, to facilitate the

settlement of payment transactions and to ensure the smooth

functioning of the U.S. payments system

The risk of providing this credit:

The Federal Reserve has developed a policy that balances the

goals of ensuring smooth functioning of the payments system and

managing the Federal Reserve’s direct credit risk from institutions’

use of Federal Reserve intraday credit.

the end
THE END

THANK YOU!!!!

Q&A

Sources

http://federalreserve.gov/

http://www.bis.org