Money banking v3

Primary Credit

Offered to financially sound institutions at a rate slightly above the federal funds rate, used for short-term liquidity needs.

Secondary Credit

Provided to institutions with financial challenges, typically at higher rates and under more restrictive terms.

Expansionary Monetary Policy

Aimed at increasing aggregate demand through measures such as lowering interest rates or increasing money supply.

Liquidity Trap

A situation where interest rates are so low that monetary policy becomes ineffective because people prefer holding cash.

Negative Supply Shock

An event that decreases supply, causing higher prices (inflation) and lower output (recessionary pressure).

Dual Mandate

The Federal Reserve's dual objectives of price stability and maximum employment.

Short Position

Selling a borrowed asset with the expectation of repurchasing it later at a lower price.

Managed Float Exchange Rates

Exchange rates primarily determined by market forces, with occasional central bank intervention.

Hard Peg

A fixed exchange rate maintained against another currency or commodity.

Soft Peg

Limited fluctuation around a central exchange rate.

Repurchase Agreement (Repo)

A borrower sells securities with an agreement to repurchase them later at a higher price.

Reverse Repurchase Agreement

The lender buys securities and agrees to sell them back later, effectively loaning funds to the borrower.

Equilibrium Exchange Rate

The rate at which supply and demand for a currency balance in the foreign exchange market.

Country Risk

Economic, political, or financial instability impacting investments and banking operations in a foreign country.

Currency Manipulation

Deliberate actions by a country to influence exchange rates to gain competitive advantages.

Offsetting Dollar Depreciation

Strategies used by monetary authorities to stabilize the value of the dollar in the foreign exchange markets.

High U.S. Rates and Dollar

High interest rates attract foreign capital, increasing demand for dollars and strengthening the currency.

Exchange Rates and Prices

The relationship between currency strength and international trade prices, affecting competitiveness.

Primary vs. Base Currency

In a currency pair, the primary currency is the quoted one, and the base currency is the reference.