Role of banks

Financial intermediary

Banks are a financial intermediary, that is an institution that operates between a saver who deposit money in the bank and a borrower who receive the loan from the bank.

Demand deposits

Also known as checkable deposits. These are the amounts of held in checking accounts the banking institution must give the deposit holder his money on demand when a check is written or debit card is used

Federal reserve bank

Central bank of the United States is a bank regulator. Responsible for monetary policy and a defined money according to its liquidity

What government entity is responsible for monitoring the US money supply?

Federal reserve

M2

Less liquid in nature and includes M1 monies plus savings and time deposits, certificates of deposit, and money market funds

Federal reserve

The central bank and the United States often abbreviated as "the Fed".

Coins and currency in circulation

The coins and bills that circulate in an economy that are not held by the US treasury, at the federal reserve bank, or in bank faults.

The Federal Reserve like most central banks is designed to perform the following three important functions

To conduct monetary policy To promote stability of the financial system To provide banking services to commercial banks and other depository institutions and provide banking services to the federal government

What does the Fed also include

12 regional federal reserve banks each of which is responsible for supporting the commercial banks economy generally in its district.

Certificates of deposit's or time deposits

Accounts that the depositor has committed to leaving the bank for a certain period of time, ranging from a few months to a few years, in exchange for a higher interest-rate.

The purpose of a financial institution such as a bank or credit union is to?

Act as an intermediary between savers and borrowers

Savings deposits

Bank accounts on which you cannot write a check directly, but from which you can easily withdraw the money at an automatic teller machine or bank

If the federal government wanted to find out how much M1 money is in circulation the United States it would look at which of the following?

Demand deposits and checking accounts

The term liquidity refers to?

How quickly a financial asset can be accessed

Discount rate

In the event of a bank run sound banks could borrow as much as they needed from the feds discount window to cover the bank run the interest rate banks pay for such loans is called the discount rate

M1

Includes those monies that are very liquid such as cash, check of all deposits, and travelers checks.

Federal open market committee FOMC

Makes the decisions regarding these open market operations. Made up of the seven members of the federal reserve board of governors.It also includes five voting members were drawn on a rotating basis from the regional Federal Reserve Banks.

Intermediary

One who stands between two other parties

A central bank has the following three traditional tolls to implement monetary policy in the economy

Open market operations Changing reserve requirements Changing the discount rate

Reserve requirements

Percentage of each banks deposit that is legally required to hold either is Kashmir Voltron deposit with the central bank. If banks are required to hold a greater amount of reserves they have less money available to lend out. If banks are allowed to hold a smaller amount of reserves they will have a greater amount of money available to lend out.

Liquidity

Refers to how quickly our financial asset can be used to buy a good or service. For example cash is very liquid. Your $10 bill can easily be used to buy a hamburger at lunchtime. However $10 that you have in your savings account is not so easy to use you must go to the bank or ATM machine and withdraw the cash to buy your lunch DOS, $10 in your savings account is less liquid

One of the ways the Federal Reserve system six to stabilize prices is by?

Regulation of interest rates

Open market operations

Take place with the central banks cells or buys US treasury bonds in order to influence the quantity of bank reserves and the level of interest rates.

Central bank

The organization responsible for conducting monetary policy and assuring that a nations financial system operates smoothly

Money market funds

Where the deposit of many individual investors are pulled together and invested in a Safeway, such as in short term government bonds.