Question

Describe operations of the federal reserve system and explain each operation.

Answer 1

The Federal reserve system is also known as the central bank system of the US, it plays a vital role in the economy and many operations or functions of the federal reserve system are as follows:

1. Manager or regulator the banking institutions- Federal reserve system regulates the banking institutions in the US, as it implements all rules and regulations that all the banking institutions had to follow for the proper financial system.

2. Controler of supply of money - Central bank system of the US also controls the supply of money and credit in the economy. If there is more supply of money in the economy than it leads to inflation, the federal reserve system must influence the supply of money properly in the economy.

3. Monetary Policy Maker - Federal reserve system is the monetary authority in the US as it formulates all the essential policies that help the economy to grow faster. All other money-related policies are also made by the federal reserve system in the US.

4. Banker of all bank- Federal reserve system is the central banking system that's why it regulates all other banks in the US and provides loans to the banks if it is necessary. All the banks in the US had an account in the federal reserve system, so in this way, the federal reserve system is the banker of other banks.

5. Manager and regulator of the foreign exchange rate and payment settlement- Federal reserve system is the regulator of the foreign exchange rate, it always tries to increase the smoothness of international trade. It also manages the payment and settlement of all the financial transactions (cheque, credit card, debit card, etc).