Federal Reserve

University of Phoenix

The purpose of money was created to allow trade between people and countries for goods or services. The functions of money are: medium exchange which is when sellers are willing to accept money in exchange for goods and or services. Unit of accounts function of money gives the buyer and seller a way of measuring value in the economy. Store of value function of money works so that you can hold the rest of the money that is not use can be stored and use in the future. Standard of deferred payment function of money is for purpose in borrowing and lending.
The Federal Reserve Bank manages the nation’s monetary systems by three monetary policy tools: Open market operations which are the buying and selling of Treasury securities like bills, notes and bonds. They have three reasons for conducting the system through open market operations and they are: the Fed completely controls their volume, can make both small and large open market operations and can implement the open market operation quickly with no administrative delay or required change in regulation. Discount policy is when the banks borrow money from the Fed by getting a discount loan with a discount interest rate. Reserve requirements are when the Fed reduces the required reserve ratio; it concerts required reserves into excess reserves. The Fed reserves requirements much more than it does open market operation.


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