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Fed do an adequate job of administering U.S. monetary policy

1. The administration of the U.S. monetary system is the responsibility of the Federal Reserve System (The Fed). Midtown Mercantile Bank is expanding its business holdings.

Write a 250-word response explaining how the Fed's role affects and limits Mercantile's expansion plans. Be sure to address the following in your response:
? Explain how the Fed affects the monetary policy.
? Define the monetary policy.
? Identify the discount rate.
? Identify the open market committee.

Then answer the following question:
? Does the Fed do an adequate job of administering U.S. monetary policy? Why or why not?

2. Consider the following scenario:
The East Coast Bank Holding Corporation is reviewing sources of capital funds needed to fuel bank business expansion.

Write 250 words identifying and explaining the primary sources of capital funds available to East Coast. Be sure to include the following in your response:
? Equity stock
? Capital notes
? Paid in Capital
? Retained earnings

Considering the sources of funds available to East Coast Bank Holding Corporation, which of these funds do you feel is more significant in determining the value of a bank?

Solution Preview

Mercentile's expansion plans are dependent on monetary policy which is set by the Federal Reserve. Monetary policy is a tool in the hands of country's monetary authority that controls the supply of money by mainly targeting the interest rate to promote economic growth and stability.
The Open Market Committee (OMC) is a committee within the Federal Reserve System which is charged with overseeing U.S. open market operations, i.e. Fed's buying and selling of U.S. Treasury securities. The committee was formed in 1933 under the Banking Act. This committee makes decisions about interest rates and growth of money supply in the nation using monetary policy as tool. OMC sets monetary policy by specifying the short-term objective for Fed's open market operations.
The Fed sets the discount rate that is believes would achieve objectives of monetary policy by fostering financial and monetary conditions. Any change in this rate or even speculation about change in the rate can affect other short-term and long-term interest rates, foreign exchange value of dollar and stock prices. This can change the household demand and business spending decisions which can ...

Solution Summary

The expert determines whether Fed does an adequate job of administering the United States monetary policy.