Structure and operations of the U.S central bank

Structure and operations of the U.S central bank

The United States of America central bank is called the Federal Reserve System which was formed in 1913 with the main reason of providing the nation with stability in its monetary and financial system which are critical to the existence of the country. There has been an expansion of the functions of the bank over time. Some of the duties include conducting monetary policy, fostering stability in the financial system, regulating the financial institution and their activities, protection of the consumer among other functions. The Federal Reserve System is headed by a board of governors that are responsible for the running of the bank through the implementation of monetary policy action. Additionally, it analyses both the local and international financial situations among other leading functions. Embedded in the structure are the federal open market committee, twelve regional federal reserves banks and other member banks all which play different roles in ensuring the success of the bank and the entire economy.

Structure and operations of the Canadian central bank

Just like the United States of America and many other countries, Canada also has its central bank called Bank of Canada (BOC) which was formed in 1934 through an act of parliament but began operating in 1935. The bank started operations as a private entity but was later made a national affair with the headquarters in Ottawa. Like the US bank, the BOC is also responsible for matters of monetary policies and regulation that impact significantly on the economy of Canada. The apex of the administrative structure of the Canadian bank is the board of directors who have been bestowed with the responsibility of running the bank. The board of directors has a total of fifteen members and led by a governor who is the chairman and chief executive officer of the board. The board governor and their deputies are appointed by the board members subject to approval by government t, and their office tenure is seven years which can be renewed on merit and performance. However, the other directors serve for three years. Some of the function of the BOC are enacting monetary policy, currency administration, overseeing the financial system, management of the fund and retail debt services among others.

Tools used by the Federal Reserve System to control supply and demand of money

The federal reserve system of the United States of America has the mandate to ensure a healthy economy of the US.  That is achieved through formulation monetary policies that are aimed at controlling the demand and supply of money. High supply of money has an expansionary effect on the economy which in turn increases the levels of investment and general supply. However, extended expansionary policy leads to increased inflation which has an impact on the economy. Therefore, there is a need to find the right between the demand and supply for money for a healthy economy. In achieving the mean between the two, the bank applies several tools. These include sanctioning its mandate in check writing, increasing or decreasing interest rates or manipulation of the reserve requirements set for different banks with the intention of controlling currency flow and interest rates.

Tools used by the Federal Reserve System to control supply and demand of money

Canadian central bank has the mandate to institute monetary policies aimed at to maintain inflation to the desired levels. With the balance in inflation, the Canadian citizens are in a position to make sound spending and investment decisions which much certainty which will have a positive impact on the economy. That is because there will be improved productivity. The model of Canada’s monetary policy has two elements which are inflationary control target and the flexible exchange rate. The inflation control target form the backbone of the Canadian monetary policy and the goal is arrived at after a consensus between the central bank and federal government. Currently, the control target is set at 2% which the mean between one and three but the review of the target is done after five years.

Additionally, the BOC has the responsibility of setting the target for the overnight rate which is a critical interest rate policy that is expected to be used by interested parties of one day in the financial markets. The overnight interest acts as an essential yardstick for other banks and financial institutions for loans and different types of credits. In achieving the objective of short-term interest rates, the bank manipulates its key policy rate by either increasing or lowering it depending on the inflation rate. Consequently, the policy rate is grown in the event the inflation exceeds the policy rate. This will exert an upward pressure on prices since it has an inverse relationship interest rate, therefore, discouraging banks and other financial institutions from lending and borrowing.

Similarly, the policy may be lowered when the inflation rate is lower than the target. This will spring the economic activity in the market and also reduce the interest rates. This policy is beneficial in both the situations of hyperinflation and deflation. The flexible exchange ate citizens and other interested persons to venture into independent monetary policies that are beneficial to the economy of Canada.

Macroeconomic conditions and bank regulations in the US

The United States is indisputably the economic leader in the world but experienced some turbulence emanating from the economic recession of 2008. However, there were expectations that the country economy will still grow. The economy had currently improved by 2.7 in 2014, and that has been due to various macrocosmic factors. Consequently, the American GDP has developed and will still grow. However, the enhanced has also been marked by massive unemployment because there are people who have been struggling with lack of job or are stagnated in their current employment. In helping the economy, the central bank has instituted regulations that have to be followed ranging from bank governance and internal controls, bank capital and liquidity requirements, rules that govern how banks operate with customers and other parties among many others.

Macroeconomic conditions and bank regulations in Canada

Canada’s economy has been on a continuous rise is expected to be growing at a rate of more than 2%. That is because there is reduced consumption and emanating from smaller increases in housing wealth. Moreover, there are projections on the rate of employment to remain low and inflation to slightly increase by 2%. Since banks are an integral part of the economy, the central bank of Canada has also instituted measures to regulate the banks to ensure they meet their objectives. These objects revolve around regulations that bank needs to implement to enhance internal controls, the capital levels that ought to be maintained by the banks, rules on the relationship of the bank with its stakeholders among other. Some of the laws are similar to those in the US although there exist some differences

 

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