Question

what does the Federal reserve do? what are it's roles and responsibilities? how does the Federal reserve regulate the flow and creation of U.S. currency?

Answer 1

Federal Reserve or the Federal reserve bank of the US is the main central bank of the United States is responsible for providing a more stable and more flexible and safer financial system. The main duties of Federal reserves are:

• "Conducting the national monetary policy by influencing the money supply and credit condition in the economy".
• Regulating the banks and other financial services in the nation.
• Providing certain financial services for the government.

The main job of the FED is to maintain a stable and flexible monetary policy in the economy. TO regulate the flow and creation of the US currency the FED use several tools, they are:

• Open market operations: In this tool, the fed buy and sell the government bonds in the open market to regulate the flow of money in the market. MOre bond they sell the more liquidity is absorbed and vice versa.
• Fund rates: When the FEd lends to other banks they charge a certain interest rate. The higher the rates the fewer people borrow and lower the rates more they borrow. This is mainly managing the interest rates in the economy and demand through it.
• Reserve rates: The fed can also manage the liquidity in the market by increasing and decreasing the reserve rates in the market. HIgher the rates more money, the bank keeps with them.