Question

In: Economics

Define reserve management and explain how reserve management influences central banks decisions to restore stability in...

  1. Define reserve management and explain how reserve management influences central banks decisions to restore stability in the financial stability in the economy.    
  2. In what way(s) the central bank is powerful? Identify some of the factors that make the central bank influential over decisions concerning the society’s socio-economic development.
  3. How does the Central Bank of Bahrain conduct monetary policy? Can you provide some examples about the instruments used by the central bank of Bahrain to influence the macroeconomic variables in the economy?
  4. What are the major challenges and opportunities facing banks in the digital age? What does deep-tech such as artificial intelligence and machine learning offer?
  5. Where and how can Fintic play a meaningful role in key Islamic financial services such as Takaful, Zakat and Waqf?

Solutions

Expert Solution

  • Reserve management is the process of reserving cash and other assets which are used to balance payments of the country,influence foreign exchange rates and to maintain stability in the finanacial markets.
  • Effective reserve management helps central bank in setting targets for unemployment,inflation and interest rates.
  • It also maintains confidence in monetary policies and provides confidence to the market that a country can meet it's external obligations.
  • Reserve management seek to ensure that adequate foreign exchange reserves are present to meet credit risk and liquidity risk in the market.
  • The central bank supplies foreign currency to keep markets stable and it also buys the local currency to prevent inflation. It helps to maintain the liquidity in the economy.
  • For example, if due to war, foreign investors withdraw their deposits then this can push down the value of local currency making imports more expensive.
  • Central Bank also uses reserves to keep the value of domestic currency at a fixed rate for instance, in China, the value of yuan is pegged.

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