ECONOMICS
FEDERAL RESERVE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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holds reserves, provides cash, supervise/ regulate banking institutions
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inc/dec reserve requirements, inc/dec discount rate, open market purchase of gov. securities buy/ sell
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loans, makes money from your money, savings/deposits, digital/cash, credit/ debit
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None of the above
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Detailed explanation-1: -The Fed has traditionally used three tools to conduct monetary policy: reserve requirements, the discount rate, and open market operations. In 2008, the Fed added paying interest on reserve balances held at Reserve Banks to its monetary policy toolkit.
Detailed explanation-2: -There are two components to this instrument of monetary policy, namely – The Cash Reserve Ratio (CLR) and the Statutory Liquidity Ratio (SLR). Let us understand them both. Cash Reserve Ratio (CRR) is the portion of deposits with the commercial banks that it has to deposit to the RBI.
Detailed explanation-3: -The most commonly used tool of monetary policy in the U.S. is open market operations. Open market operations take place when the central bank sells or buys U.S. Treasury bonds in order to influence the quantity of bank reserves and the level of interest rates.
Detailed explanation-4: -The instruments of monetary policy include discount rate, reserve requirements, and open market operations.