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banks
where money can be kept for safety and money can be borrowed for development
interest
making money from charging interest rates on money someone put into the bank
central banks
european soverign recognition
1913 federal reserve act
established federal reserve system
“these united states of america”
the US is viewed as a group of states with individual leadership but bound by constitution
board of governors duty
regulate banking system and interpret laws
how many people are on board of governors
7 governors, one of the 7 is a chairman
how are governors chosen
Governors are appointed by the president with advice and consent of the senate.
how many districts are there
12 districts, with each one having its own district bank
how many district presidents are there
1 bank president per district
what do district bank presidents do
they participate in the system
each district bank supervises its district from the regulations the board of governors give them
3 major jobs of the fed
regulates and supervises the banking system
serves as a bank for banks
conduct monetary policy
who supervises the banking system
the board of directors
who supervises the banking system
district bank
3 tools of monetary policy
fractional (required) reserve ratio
discount rate
open market operations
tronch (?)
an amount or level of money
money multiplier equaiton
1/required reserve ratio
discount rate
rate at which the fed would lend money to the banks
what does the fed lowering the discount rate mean
lowering the discount rate is an indication that the fed wants the economy to get moving
what does a high discount rate indicate
the fed wants to show the economy down
language for how fed will lower discount rate example
“lower 25 basis points”
federal funds rate
rate at which banks charge each other
vast pool where banks are trading securities and money back and forth
market driven
set by market forces, supply and demand for money
who sets the discount rate
the fed
open market operations (OMO)
hundreds of billions of dollars “swirling” through the economy, the force that is maintaining control of the economy for the short term.
empire bank
new york fed district bank
more important than other district banks
how often does the FOMC meet?
8 times a year
federal open market committee (FOMC)
all 7 governors are on the committee + 5 district bank presidents
how many FOMC members are rotational
4 of the district bank presidents serve 2 year rotating terms
which FOMC member is permanent
the empire bank president
DTD
domestic trading desk
empire bank
where do FOMC decisions end up
the FOMC president send message to empire bank and the message goes to the domestic trading desk
job of the DTD
execute to orders of FOMC delivered from FOMC president to the desk manager
example: FOMC message says to drain liquidity
Desk trader has tons of dollar bills and tons of T-bills.
As a desk trader, you sell t bills to the bank (FFM) to get dollars from the federal funds market.
that’s how to drain liquidity.
example: message says to add liquidity to the economy
The bank (FFM) gives T-bills to the trader and trader gives dollars to the federal funds market.
Add liquidity turns interest rates the other way
M0
cash and currency
M1
M0 + demand deposits
what are demand deposits
checking accounts
M2
M1 + NOW + Small Time Deposit
M3
M2 + large time deposits + euro money
Note 
Flashcard (87)