Question

-The Federal Reserve and the Financial System

7. In what ways is the Fed act as the government's bank?

8. What is the rationale for the Fed's role as a bank for private banks?

9. Why does the Fed play a supervisory role in the U.S. payment system?

10. In what ways do payment-system risks span national borders, and how do central banks seek to contain these risks?

Answer 1

7. FED acts as a government bank as it holds a the reserves and deposits on behalf of the government and it helps in issuing funding to different sectors on the instructions of government. Fed also issues treasure bills on the behalf of American government.

8. Federal reserve acts a facilitator for the private Banks as it controls over the ratios they are required to keep . It also controls over the liquidity of various private Banks and it also acts as their savior if they need a bailout.

9. FEd also plays a supervisory role in US payment system as Payment system is exposed to different kind of credit risks and default risks , Fed maintains a check over different kinds of risks to protect from any adverse situations.

10.In the age of globalisation , payment Risks spans across national borders as impact of quantitative Easing and impact of quantitative tightening can be felt outside the domestic territory. People can infuse or take out money based on policy of one country and cause global meltdown or global rally.