Question

1. What is the implication of “U.S. dollar liquidity swap lines”?
2. Why is it crucial for the Fed to take the role of lender of last resort for other central banks in the world and intervene in international financial markets?

Answer 1

A. The dollar liquid swap lines are helping in maintaining high amount of liquidity as well as proper credit availability to the householders and the businesses of the United States and these will be designed in order to reduce the stress related to foreign events. These Dollar liquidity swap will be providing with central bank with an ability to infuse the liquid into the stressed market in United States as well as providing various other Central banks in order to infuse liquidity in their country

B. It is crucial for Federal Reserve to take the role of the lender of the last resort and intervene in International Financial Market because the entire global economy is interdependent on each other and even if we will be having a financial crisis, it will be having a contagion effect in the entire global Arena so federal reserve should be trying to proactively provide support to various other countries Central banks because dollar is a major currency and Central Bank of United States of America should be providing them with the adequate facility in a respect to controlling of the crisis and stress.