We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Nobody downloaded yet

Economics of Money and Banking - Essay Example

Comments (0)
Summary
Economics of Money and Banking Task 1 Banking and non banking financial institutions play a pivotal role in determining the extent of economic development in a nation. It is a traditional theory that individuals or households save a portion of their income…
Download full paper
GRAB THE BEST PAPER
Economics of Money and Banking
Read TextPreview

Extract of sample
Economics of Money and Banking

Download file to see previous pages... Investments are a boon for the progress of any economy. This does not imply that the commercial banks would charge negative interest rates to the investors in order to boost up investment thresholds in the country. The banking institutions may offer loans at zero interest rates. Zero interest rate policy under taken by the central bank of a country is a situation where they charge a low nominal rate of interest (Woodford, 2001). This is associated with stimulating the economy, when the pace of economic development is low in a nation. Interest rates can never be negative, a negative interest rate charged on loans is a hypothetical state where the bank would offer concessions on loans charged to the investors or borrowers. This will not only involve loss of gross reserve in a bank but also lead to non potential investments in the economy. The commercial banks will land up offering loans on risky and unviable projects and thus may be forced to offer implicit bail outs to many failed projects in the economy. This would make the overall investment market uncertain in the economy. Thus, interest rate charged on loans can never be negative. The Taylors rule is a model used for determining the interest rates in the economy; it was introduced by John Taylor in 1992. This rule explained the different interest rates that the Federal Reserve would probably set in future in United States, based on the theory of rational expectations in macroeconomics. Taylor framed his model assuming that all the economic entities in the market will always have positive expectations about the future economy. The Taylors model cannot consider the long term prospects of an economy (Asso, Kahn and Leeson, 2010). As taken in this essay, the Taylors formula is: r=p+0.75(5.5%-u) + 0.5(p-2) + 2. Where r = Federal funds rate. u= Unemployment rate. p= Rate of inflation. Fig 1: Federal Fund Interest Rates by Taylors Rule Years Federal Fund Rate ® 01/03/10 -1.24 01/06/10 -1.48 01/09/10 -1.48 01/12/10 -1.40 01/03/11 0.02 01/06/11 -1.25 01/09/11 -1.18 01/12/11 -0.80 01/03/12 0.19 01/06/12 -0.58 01/09/12 -0.28 01/12/12 -0.28 (Source: STLOUISFED, 2013a; STLOUISFED, 2013b) The table above shows the different quarterly rates of interest, the Federal Reserve could set in 2010, 2011 and 2012 according to the Taylors Rule. “Yes”, following the above schedule it can be concluded that the Taylors rule suggested keeping the federal funds rate negative in the recent years. This is because the economy is facing recessionary trails in the market in the last few years. A negative interest rate would suggest the Federal Reserve to set expansionary monetary policies and augment the velocity of circulation of money in the U.S. economy. Task 2 In normal market conditions, Taylors rule suggested that the federal funds rate must be such that the inflation and real interest rates in the economy would be 2% and the rate of unemployment naturally existing in the economy would be 6%. However considering the present recessionary trails in the market the Taylors rule have suggested that the federal funds rate must be negative to induce monetary easing in the crisis economy of U.S. The Taylors rule has become an important pivotal support for most of the policies framed by the federal bank. However, the analysis about different economic outcomes made by the Federal Bank is much deeper than the other central banks in the globe. Taylors rule viewed that the U.S. economy was in a crisis in the recent years, it was desirable for the U.S. central bank to simply adopt ...Download file to see next pagesRead More
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
The Economics of Money, Banking, and Financial Markets
To ensure the success of companies in other countries, it is vital to undertake risk analysis before establishing the venture. Risk analysis is a significant process that entails identifying and assessing aspects that may interfere with the progress of a company thus making it difficult to achieve the objectives set by the management.
10 Pages(2500 words)Essay
MONEY AND BANKING
Trade deficit in a country is an economic condition, which results when a country imports more goods than it exports. The deficit is equivalent to the goods imported less the value of the exported goods, and it is given in terms of the currency of the involved country. Measuring the trade deficits is difficult and it involves measuring investment flow for different accounts. These include the financial and the current accounts, which are totalled to get the balance of payments.
4 Pages(1000 words)Essay
Money & Banking Foreign Trade
Similarly, modern people largely depend on banking services including but not limited to check settlement, money transfer, online purchases, and payment of bills and subscriptions. With the emergence of globalization, countries worldwide liberalized their cross border trade laws which in turn promoted the concept of foreign trade.
17 Pages(4250 words)Essay
Money,Banking&Finance
Thus, for the determination of the value of a bond for a period of time, the rate of interest is a useful metric that would help in determination of the present value and the future value of the bond. Interest rate is generally determined from the market rates which would be captured in the valuation of a long term debt instrument such as a bond.
7 Pages(1750 words)Essay
Money & Banking
The study also mentions the recent shut down and take-over of Lehman Brothers and also the problems faced by AIG to borrow money. One of the most important responsibilities for the Fed is that of ensuring monetary stability in the economy, which can be achieved through a combination of stable prices of goods and services across the economy coupled with a low inflation level and level of confidence of the investors in the currency of the country.
9 Pages(2250 words)Essay
Economics of Money and Banking Short Answer Questions
It would be noted that the foreign exchange market basically concerns the trading of the Australian Dollar as against other currencies. For this reason, the Reserve Bank of Australian intervenes by floating the
4 Pages(1000 words)Essay
Money & Banking - economics 321
These events cause a displacement of the macroeconomic system and change the economic outlook of the stakeholders in the financial sector. This can result to the depletion of capital in some sector and overvaluation on some as investments
2 Pages(500 words)Coursework
Money & Banking
culated, estimated and reported each month by the Bureau of Labor Statistics (BLS), that operates under the US Department of Labor using data gathered from the Current Population Survey. The Bureau of Labor Statistics estimates unemployment, employment and labor force of over
3 Pages(750 words)Assignment
MONEY AND BANKING ASSIGNMENT
techniques differ in countries and the strategy to compel market towards a rate target is through lending or borrowing money in quantities that is somehow unlimited. This is usually done up to the level where the set target for the target market is accomplished. They accomplish
8 Pages(2000 words)Essay
Money and Banking Assignment
Although the central bank’s role in controlling inflation and ensuring that the economy runs smoothly is commendable, the problem occurs when it operates as the lender of last resort. Financial institutions ‘ability to easily access
4 Pages(1000 words)Essay
Let us find you another Essay on topic Economics of Money and Banking for FREE!
Contact us:
+16312120006
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us