Money and capital market - Essay Example

This form of policy gives the bank an opportunity to avail massive liquidity. This policy is very effective in addressing frozen liquidities that are experienced across the globe especially in the United States of America where money transfer between banks has been witnessed during a financial crisis. This is a step to mitigate the effects liquidity shortage could have as far as solvency problems is concerned. Liquidity policy response is also beneficial in many ways. It does not only offer solutions to short term money problems in market rates.

It also helps to ease pressures at the markets as far as funding is concerned. This is a step towards ensuring that funds are supplied for long term benefits as well. Further, central banks help by enlarging the eligibility base as far collateral lending is concerned. In exceptional cases, central banks increase their lending bases to non depository financial institutions and banks as well (Stein, 2011, p. 4). Finally, central bank uses the liquidity response policy to establish felicities for lending to enhance the market repose between banks.

Liquidity response policies to the economic crisis have been seen to be essential in nurturing good communications among different countries of the world. In addition, central banks have also assisted many institutions within a country as far as emergency assistance concerning money is concerned. Swapping of money among banks has been also witnessed in Europe in 2011 in response to an economic crisis within the European Union. Monetary policy response also helps to determine the levels of interests’ rates.

Subsequently; good interest’s rates create stable prices in an economy. For example in 2011, European countries adjusted the interest’s rate of their currency to avoid financial crisis. This way, the frameworks under which markets operate become favourable (Monetary policy report, 2011, p. 2). In addition, the decisions are transmitted to financial markets, as well as the actual economy, which increases the efficiency of the economy. Central banks have responsibilities to adjust the policies related to money to prevent the risk of economic instability.

This way, the monetary policies are very important in dealing with problems related to inflation as the macroeconomic environments are usually kept in stable conditions. Ultimately; the possibilities of the financial crisis are greatly reduced. Fiscal policies are also handy in addressing economic policies. This is usually seen by the initiatives a particular government puts into place so as to deal well with the financial crisis within a nation. Fiscal policies are suitable in propagating a real economy from an economic crisis (Miriam, 2011, p.3). This form of policy involves a lot of interventions by the government in addressing the challenges an individual institution faces as far as the financial crisis is concerned.

Other initiatives are also taken by governments so as to boost domestic economies. Improving housing markets; for example, is very useful in boosting the local economies. In addition, supporting the growth of domestic industries rather than the individual ones is also a step towards increasing the growth of domestic economies in Australia as at 2012. Finally; monetary policies reforms as a way of dealing with the financial crisis are one of the options that are necessary. Such reforms can restore confidence within markets resulting into a financial