Question

1, What are the primary responsibilities of the Federal Reserve?

2. Which scenario did you find the most informative? Which character did you find the most entertaining?

3. How did the Fed act to maintain/restore confidence in the US monetary system during the 9/11/2001 crisis?

4. Watch the whole lesson for comprehensive understanding of Money and Banking. Quite, often governments are criticized for bailing out the banking sector in an economic crisis due to the concept called “Too Big to Fail.” Given the connection between your life and the financial sector, can we ever really get beyond this issue of having to rescue large institutions in time of crisis?

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Answer 1

1. The primary responsibilities of Federal Reserve are to regulate the monetary policy, to serve as a banking and fiscal agent for the government and to regulate the financial institutions

2. Among these roles the monetary policy seems to be more informative. It is used in order to bring in price stability and ensure a sustainable growth. The monetary policy is regulated through open market operation, adjusting the discount rate as well as the reserve requirements The most entertaining of them can be considered as the functions they perform to regulate the financial institutions and to bring in soundness to the banking system and to protect the credit rights of the people.

3. The Federal Reserve responded very fast to the unusual conditions in the financial markets. One of the main responsibilities was to provide more supply of money in order to meet the immediate currency demand. For this they used the instrument of monetary policy - open market operation and adjusting the margin requirements for stock market . Margin requirements is the cash to value ratio required to purchase a given amount of stock It also lowered the funds target over the medium term

4. A bailout is a common term for providing financial help to a country or a company which is on the brink of bankruptcy. The government resources are used to support a company when their goods and services are considered important in maintaining a country's economic welfare . But the process involves certain shortfalls . It will give rise to moral hazard. The money with the productive hands are taken and given to the failing ones. In a free market both success and failure are bound to happen. By bailing out the earnings of the successful entities are transferred to unsuccessful one.