Question

Please answer all in microsoft word

Explain the US Central Banking System and its functions. Explain the organization, how members of the board and chair are chosen, and their terms.

Answer 1

The central bank of the United States is the Federal Reserve System, or “the Fed,” which Congress established with the 1913 Federal Reserve Act.The critical feature of a central bank — distinguishing it from other banks — is it legal monopoly status, which gives it the privilege to issue bank notes and cash. Privately owned commercial banks are only permitted to issue demand liabilities, such as checking deposits.

Functions of Central bank:

1. Central banks control and manipulate the money supply: issuing currency and setting interest rates on loans and bonds. (Typically, central banks raise interest rates to slow growth and avoid inflation; they lower them to spur growth, industrial activity and consumer spending.) In this way, they manage monetary policy to guide the economy and achieve economic goals, such as full employment.

2. They regulate member banks through capital requirements , reserve requirements and deposit guarantees among other tools. They also provide loans and services to a nation's banks and its government and manage foreign exchange reserves .

3. A central bank also acts as an emergency lender to distressed commercial banks and other institutions, and sometimes even a government. By purchasing government debt obligations, for example, the central bank provides a politically attractive alternative to taxation when a government needs to increase revenue.

• The members of the Board of Governors are nominated by the President of the United States and confirmed by the U.S. Senate.

  The full term of a Governor is 14 years; appointments are staggered so that one term expires on January 31 of each even-numbered year. A Governor who has served a full term may not be reappointed, but a Governor who was appointed to complete the balance of an unexpired term may be reappointed to a full 14-year term.Once appointed, Governors may not be removed from office for their policy views.

  In addition to serving as members of the Board, the Chair and Vice Chairman of the Board serve terms of four years, and they may be reappointed to those roles and serve until their terms as Governors expire. The Chair serves as public spokesperson and representative of the Board and manager of the Board's staff. The Chair also presides at Board meetings. Affirming the apolitical nature of the Board, recent Presidents of both major political parties have selected the same person as Board Chair.