Federal Reserve Board - Essay Example

But when we talk about of United States which is world's largest economy then the monetary policy of the country also expands its impact on in form of economic and financial effects on other countries of the world. In shortest possible definition the main objective of a monetary policy is to look into various aspects of the economy of a nation ranging from inflation; economic output; to employment. The working of it could be understood by way it affects the demand i.e., is being parameterized in form of people's and firms' current tendency towards expenditure and spending on goods and services.

In United States the Monetary policy matters relate to it are all conducted by the Federal Reserve System which is the central bank of America and the form of influences it makes on demand is mainly by raising and lowering of short-term interest rates (Dennisy, 2007). The responsibility of conducting a monetary policy lies in the hand of Fed's FOMC or Federal Open Market Committee. The FOMC comprises of 12 members out of which the seven members are from the board of Governors; the President of the Federal Reserve Bank of New York and the rest four are the other Reserve Bank Presidents who occupy the seat in rotation.

The Committee meets eight times a year in Washington, D.C. The remaining Reserve Bank Presidents provides all necessary inputs to the Committee's discussions on various issues. The Directors of each Reserve Bank has their own defined duty in form of contributions through recommendations about discount rates (Federal Reserve Bank of San Francisco, 2004).Federal Open Market Committee in 2007 The FOMC amended its policy related to the Authorization for Domestic Open Market Operations on January 30, 2007 and directed the Federal Reserve Bank of New York so that various domestic policy directives could be adopted.

The Bank has now been authorized to buy or sell U.S. Government Securities from or to securities dealers and foreign and international accounts maintained at the Federal Reserve Bank of New York. This includes buying and selling of U.S. Government securities and obligations that are in direct obligations of, or have been fully guaranteed to principal and interest by, any agency of the United States, from dealers for the account of the System Open Market with process being competitive bidding.

The authorization has been further expanded to ensure the conduct of open market operations through lending government securities to dealers to be determined by competitive bidding. The bank will also act as an assisting agent for foreign and international accounts maintained in the bank for short-term investments (The Federal Reserve Board, 2007). The FOMC while considering the necessity to carry out the various foreign currency directives has asked the Federal Reserve Bank of New York for System Open Markets Account.

The bank has been granted further permission to purchase and selling of some foreign currencies in the form of cable transactions on the open market at home and abroad with foreign monetary authorities, with Bank of International Settlements, and with other international financial institutions. The currencies which have been considered for above mentioned transactions are Canadian Dollars, Danish Kroner, Euro, Pounds Sterling, Japanese Yen, Mexican Pesos, Norwegian Kroner, Swedish Kronor and Swiss