Bank in the USA

US Federal Reserve

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For successful work in the market the trader must ask himself daily about two questions: How can the price of any financial instrument change during the day? What to expect in the near future – a rise or fall in prices? The correct answer gives you the opportunity to save and increase your income. Successful dealer activity in the market depends on the correct analysis, so the trader should be first and foremost an analyst, and then a trader. Before starting trading, you need to analyze the market, and only then open the position.

In this connection, there are logical questions: What influences the price of financial instruments? By which mechanisms does the price change? Who has the main impact on the market as a whole?

It’s no secret that the main trading currency in the market is the US dollar. With his participation, more than 80% of daily operations are conducted with the currency. Consequently, the greatest possible influence on the money market is caused by changes in the US economy, which influence the formation of the dollar against other currencies.

The most significant market participant is the Federal Reserve US (abbreviated to the Fed). The Fed was organized on December 23, 1913 as an independent agency with central bank functions. The FSB manages all American commercial banks. The Fed consists of twelve reserve banks and at least three thousand member banks. Reserve banks are located throughout the United States in the largest cities. Member banks are commercial organizations.

The Fed’s Board of Governors puts it over all this. This management body carries out unified management and control over the functioning of the banking system of the state. Board Chairman one of the most influential people in the world. It is believed that the state has a decisive role in the work of the Fed.

The chairman of the Fed’s Board of Governors in the summer and winter speaks with a report that has a significant impact on the world market. From January 6, 2014, Janet Yellen was appointed head of the Federal System of America. For this post he was approved by the US Senate on the proposal of Barack Obama.

The Federal Reserve is a completely independent organization. Under the law, the president or the US Congress can not abolish it. But the congress and the president are involved in appointing members of the Council, which consists of seven people appointed for 14 years. In order to renew the membership of the Council, one of its members changes every two years.

Federal Reserve Banks (abbreviated as Federal Reserve Bank), which are part of the Fed, in essence, are its territorial offices. Each bank has its own board of directors. For each of the banks, a certain state is assigned. The 12 federal banks have 25 offices in America’s financial centers. All major directives of the Board of Governors are made through reserve banks. The Fed’s primary bank is the New York bank.

By their very nature, the Federal Reserve are public organizations whose main task is to stabilize and improve the economic situation in general. In the people, they are called banks of bankers, as the FRB only work with commercial banking institutions, taking deposits from them and issuing loans. One more important obligation for the federal reserve banks is the the issuance of cash in circulation, which forms the supply of money in the economy.

To create the foundation for banking activities, the Governing Council actively cooperates with the Open Market Committee. The Committee regulates the Fed’s activities on the market of government securities, which has a major impact on the supply of money.

The coordinating body of the Federal Reserve is considered an advisory council. The board consists of 12 members from each reserve bank. All regulations established by the advisory board are optional for execution as they are a recommendation or recommendation.

The US Federal Reserve fulfills the following main tasks:

Control over money supply in circulation, that is, the supply of money must correspond to economic needs;

Saving investments (reserves) having a definite influence on the regulation of the supply of money.

The Federal Reserve impacts on the foreign exchange market through the following financial mechanisms:

1. Changing the discount rate. Lowering the interest rate allows commercial banks to build up reserves. Bank stocks are increasing at the expense of loans that commercial banks are actively starting to take from the central bank. An increase in own reserves allows commercial banks to issue more loans, which allows them to lower their interest rates even further. Credits are cheaper, and it becomes publicly available. This policy is called a cheap money policy. It implements its Fed in the event of a downturn in the economy and an increase in unemployment. In case of an increase in the inflation rate, the «expensive money policy» is being introduced. The interest rate is increasing, as a result of which loans are rising, which entails a reduction in the money supply, which allows you to pay off inflation.

In order to influence the volumes of money demand and supply, the Fed uses one more financial instrument – government securities. Their sale or sale in the open market has a huge impact on the economy as a whole, and, in particular, it affects the volume of reserves of commercial banks. Selling securities to commercial banks reduces their own reserves, and the return of these securities, through the acquisition of them from commercial banks, allows them to increase reserves. Further, the change in the supply of money supply occurs in the same way as with the change in the interest rate;

2. Foreign exchange intervention. This mechanism allows direct influence on the formation of the exchange rate of its currency on the international market. The intervention is conducted through the purchase or sale of foreign currencies held by the Fed. If the Fed wants to raise the rate of the US dollar, it sells foreign currency, the offer of foreign currency on the international currency market is increasing mdash; the dollar is growing. To lower the exchange rate of its own currency, the Fed buys foreign currency for US dollars.

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