Chapter 26 & 27 (not completed)
Legal Reserve Requirement:
The percentage of demand deposits banks and other financial intermediaries are required to keep in cash reserves. The legal reserve requirement is determined by the Federal Reserve, and the typical percentage kept within the banks is around 10%.
Demand Deposits:
There is a promise that the banks will give back the full deposit on demand, known as demanded deposits.
Federal Funds rate:
¬ The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight.
Fractional reserve system:
A banking system that provides people immediate access to their deposit but allows banks to hold only a fraction of those deposits in reserve.
Financial Intermediaries:
Financial intermediaries Firms that accept deposits from savers and use those deposits to make loans to borrowers.
What are the three principal requirements for the banking system to create money?
First, a fractional reserve system operating within financial intermediaries, such as banks, savings and loan associations, or credit unions, that are able to loan out some fraction of their deposits. Second, they need people willing to make demand deposits. Third, they need borrowers prepared to take out loans to finance investment projects.
One way the Fed can increase the nation's money supply is by reducing the reserve requirement. Explain how this works.
If the Fed lowers the reserve requirement, it means the bank gets to keep less money in their vaults and more money spent on loans and money earning opportunities. When there is a lower reserve requirement, there is more money circulating in the economy and increasing the money supply. Banks would also earn more in profits from these loans, and the money's owner would also get interest from the bank borrowing their money.
Federal Reserve Act 1913
The Federal Reserve Act is an Act of Congress that created and established the Federal Reserve System, the central banking system of the United States, and which created the authority to issue Federal Reserve Notes,.
Balance Sheet:
The bank's statement of liabilities (what it owes) and assets (what it owns).
FDIC (Federal Deposit Insurance Corporation):
¬ A government insurance agency that provides depositors in FDIC participating banks 100 percent coverage on their first $100,000 of deposits.
Open Market Operations:
¬ Open market operations refers to the buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system, facilitated by the Federal Reserve.
Federal Open Market Committee:
¬ The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve Board that determines the direction of monetary policy.
Federal reserve system:
¬ The central bank of the United States.
Federal Discount Rate:
¬ The federal discount rate is the interest rate set by the Federal Reserve on loans offered to eligible commercial banks as a measure to reduce monetary issues and the pressures of reserve requirements.
