Macroeconomic Impact on Business OperationsEssay title: Macroeconomic Impact on Business OperationsMacroeconomic Impact on Business Operations“Job Weak, Unemployment Soars, More Cuts coming, and Bankruptcies Jump 40%.”These are typical headlines we see in the newspaper, internet, and journals. We also hear these in news, radio stations and office chats. These are valuable information that economists use to analyze economic situation of the country. These can also be information that individual use to guard their spending. Information like these provides major decision for individual and for the country as a whole.
For a country to be progressive, economic decision is of prime importance. Achieving full economic stability is dependent on a lot of factors. Two of the most widely used key indicator in economic decision is the country’s fiscal and monetary policy.
Monetary policy affects all kinds of economic and financial decisions people make in a country, whether to get a loan, build a new house, buy a car or to start up a business, whether put to savings in a bank, invest in a stock market, or invest in a capital asset. Because dollar is use as the standard unit of currency in international market, monetary policy of the United States has significant economic and financial effects on other countries. Just like monetary policy, fiscal policy also affects decisions people make in their finances. Both monetary and fiscal policies are controlled by the government to manage the supply of money, or trading in foreign exchange market.
Monetary Policy and Tools that Control the Supply of Money“The Federal Reserve System is the central banking system of the United States. Created in 1913 by the enactment of the Federal Reserve Act, it is a quasi-public banking system composed of (1) the presidential-appointed Board of Governors; (2) the Federal Open Market Committee; (3) 12 regional Federal Reserve Banks located in major cities throughout the nation acting as a fiscal agent for the US treasury, each with its own nine-member board of directors; (4) numerous private U.S. member banks, and (5) various advisory council” (Federal Reserve System, 2007).
The most important policy making body of the Federal Reserve System is the Federal Open Market Committee. The Federal Open Market Committee composed of the seven Governors, the President of the Federal Reserve Bank of New York, and four other Reserve Bank presidents that serve on a rotating basis. The Federal Open Market Committee can affect monetary policy through the use of three tools (American Government and Politics Online, 2004).
“Open market Operations consist of buying of government bonds from or the selling of government bonds to, commercial banks and the general public” (McConnel-Brue, 2004, p. 270). Buying of bonds from commercial banks or the public increases the reserves of the commercial banks. The increase reserve of commercial banks increases their ability to lend to the public and thus increases the nation’s supply of money. Selling of securities on the other hand reduces commercial bank’s reserve, and thus reduces the nation’s money supply (McConnel-Brue, 2004).
Reserve Ratio is the amount of funds that a depository institution must hold in reserve against specified deposit liabilities. Within limits specified by the law, the Board of Governors has the sole authority over changes in reserve requirements. Depository institutions must hold reserve in the form of vault cash or deposits with the Federal Reserve Bank (Reserve Requirements, 2007). Reserve ratio affects the money supply in a country, lowering reserve gives up portion of the money tied up as reserve which enhances the ability of banks to lend money. This also in effect increases the nation’s supply of money. On the other hand, increasing the reserve ratio decreases the bank’s ability to lend money, and thus decreases the nation’s supply of money (McConnel-Brue, 2004).
The Reserve Act in the United States also protects the deposits for money backed by U.S. Federal Reserve notes as a part of their account balances. Money backed by U.S. Federal Reserve Notes is recognized as such under both the Reserve Act and the Office of the Comptroller of the Currency.
As of 2012 the U.S. Government Printing Office (USA) has released a 3-page document titled “Commodity Prices and Loan Risk in Federal Reserve System in the First 100 Years. ” It outlines what Federal Reserve Notes are and what their risk is. More about the document are available on its website. However, the main point of emphasis is the dollar amount of the Federal Reserve Notes.
The Federal Reserve System does not own anything of value related to the U.S. Dollar except for its principal currency or other securities, such as the United States Treasuries (the Notes), foreign currency notes, cash reserves, cash on hand notes, or collateralized debentures. The Notes, such as the cash and securities which can be converted into Federal Reserve Notes by the U.S. government in the financial system for issuance are, in the words of a federal official, “the gold, silver, and palladium of the United States of America” (McConnel-Brue, 2004).
The term “currency,” in short, refers not only to the U.S. Dollar but to any unit of it, including the various instruments of trade such as the U.S. dollar.
The U.S. Treasury has issued the notes as notes of certain securities: the Treasury note is “Treasury Notes,” and Federal Reserve Notes are other government-issued dollar notes which will be listed in Treasury Notes on the secondary Federal Reserve Board Financial Notes. Federal Reserve Notes are backed by U.S. Federal Reserve deposits. Federal Reserve notes are secured in cash, paper, and gold. Because a Treasury note has the same central bank as those which the Federal Reserve has in place, there is certain probability that all Federal Reserve notes will have its counterpart in real money, including a U.S. government-issued paper note and currency. This can occur if an exchange rate of the U.S. dollar is set against the exchange rate of real money in the United States. This rate is not normally set by central banks, such as European Union or U.S. Treasury. The Fed also reserves deposits in gold and silver, which are called depositable commodities and are available for redemption if they are held in an FDIC or U.S. Treasury note that is backed by an account of the Notes that the Treasury notes are backed by.
The U.S. Government’s interest in the U.S. Dollar is based off the U.S. dollar. However, the Federal Reserve has set interest rates for various currencies in the United States which are different from the levels generally set by the U.S. Federal Reserve System. Interest rates which are lower than those provided for by the U.S. Central
The Reserve System of Russia’s Financial System (Rysk) of the Federal Republic of the Russian Federation, which was established pursuant to the 1997 Constitution, covers a portion of the Russian Federal Reserve System since 1998, through the purchase of deposits in its banks. This Rysk and other national central banks make a deposit in central banks to receive the funds by deposit and other transactions are considered deposits. On deposit, deposits can be made by means of credit-card or bank. The system is still operating within the Rysk law, although the requirements to transfer money from one region to another is no longer fulfilled and the country’s Rysk is still part of the Rysk system. In effect, it has become, after the purchase of foreign currency and other items from outside the Rysk system, an international government. This government is responsible for the payments made on international wire transfers and of the bank deposits of foreign individuals who are outside the Rysk system. The system has a number of components. The Rysk law does not permit any other member of the international Rysk, government, bank or other organization to transfer funds from one state to another. Instead, it allows the Rysk to transfer funds from the local country to any neighboring one, in order to facilitate transfers of bank deposits and other cash or money to local foreign governments. Each state and bank in Russia (whether a financial institution or a local bank or a federal reserve bank with its own reserve requirements) carries to one bank, and each state has its own bank account. This bank account makes payments (debtorization) on deposits in foreign money, money market and currency markets. The system is still in use in many countries.
The Russian Central Bank (Rysk) continues to operate the Rysk system despite the decision of the Council of Ministers to establish a different government. It consists of three three-men who comprise the Financial and Monetary Committee, the central bank and the central reserve. Their roles are to implement the regulations on the bank that regulates the banking sector, to monitor the deposit and transfer operations of the central bank and to ensure the compliance of the Rysk Act, and to oversee the general administration of the Rysk (Harkova, 2011, p. 44). In 2012, according to the information available publicly on the Rysk’s website, four members of the central bank were appointed at the beginning of 2013; the rest were appointed in 2016. They take charge of the supervision of the central bank, supervision relating to financial sector regulation, supervision of the deposit and transfer in the Russian banking system, and coordination of regulatory activities. The four other members of The Central Bank, including the head of the central bank, the head of the bank’s supervision department and its head of the central reserve, are not appointed by the central authorities of the country at that time (Davotovich, 2001, p. 43). Dvotovich is a member of the Central Bank of Russia’s Board of Governors and has the mandate to make decisions which
The Reserve System of Russia’s Financial System (Rysk) of the Federal Republic of the Russian Federation, which was established pursuant to the 1997 Constitution, covers a portion of the Russian Federal Reserve System since 1998, through the purchase of deposits in its banks. This Rysk and other national central banks make a deposit in central banks to receive the funds by deposit and other transactions are considered deposits. On deposit, deposits can be made by means of credit-card or bank. The system is still operating within the Rysk law, although the requirements to transfer money from one region to another is no longer fulfilled and the country’s Rysk is still part of the Rysk system. In effect, it has become, after the purchase of foreign currency and other items from outside the Rysk system, an international government. This government is responsible for the payments made on international wire transfers and of the bank deposits of foreign individuals who are outside the Rysk system. The system has a number of components. The Rysk law does not permit any other member of the international Rysk, government, bank or other organization to transfer funds from one state to another. Instead, it allows the Rysk to transfer funds from the local country to any neighboring one, in order to facilitate transfers of bank deposits and other cash or money to local foreign governments. Each state and bank in Russia (whether a financial institution or a local bank or a federal reserve bank with its own reserve requirements) carries to one bank, and each state has its own bank account. This bank account makes payments (debtorization) on deposits in foreign money, money market and currency markets. The system is still in use in many countries.
The Russian Central Bank (Rysk) continues to operate the Rysk system despite the decision of the Council of Ministers to establish a different government. It consists of three three-men who comprise the Financial and Monetary Committee, the central bank and the central reserve. Their roles are to implement the regulations on the bank that regulates the banking sector, to monitor the deposit and transfer operations of the central bank and to ensure the compliance of the Rysk Act, and to oversee the general administration of the Rysk (Harkova, 2011, p. 44). In 2012, according to the information available publicly on the Rysk’s website, four members of the central bank were appointed at the beginning of 2013; the rest were appointed in 2016. They take charge of the supervision of the central bank, supervision relating to financial sector regulation, supervision of the deposit and transfer in the Russian banking system, and coordination of regulatory activities. The four other members of The Central Bank, including the head of the central bank, the head of the bank’s supervision department and its head of the central reserve, are not appointed by the central authorities of the country at that time (Davotovich, 2001, p. 43). Dvotovich is a member of the Central Bank of Russia’s Board of Governors and has the mandate to make decisions which
The Reserve System of Russia’s Financial System (Rysk) of the Federal Republic of the Russian Federation, which was established pursuant to the 1997 Constitution, covers a portion of the Russian Federal Reserve System since 1998, through the purchase of deposits in its banks. This Rysk and other national central banks make a deposit in central banks to receive the funds by deposit and other transactions are considered deposits. On deposit, deposits can be made by means of credit-card or bank. The system is still operating within the Rysk law, although the requirements to transfer money from one region to another is no longer fulfilled and the country’s Rysk is still part of the Rysk system. In effect, it has become, after the purchase of foreign currency and other items from outside the Rysk system, an international government. This government is responsible for the payments made on international wire transfers and of the bank deposits of foreign individuals who are outside the Rysk system. The system has a number of components. The Rysk law does not permit any other member of the international Rysk, government, bank or other organization to transfer funds from one state to another. Instead, it allows the Rysk to transfer funds from the local country to any neighboring one, in order to facilitate transfers of bank deposits and other cash or money to local foreign governments. Each state and bank in Russia (whether a financial institution or a local bank or a federal reserve bank with its own reserve requirements) carries to one bank, and each state has its own bank account. This bank account makes payments (debtorization) on deposits in foreign money, money market and currency markets. The system is still in use in many countries.
The Russian Central Bank (Rysk) continues to operate the Rysk system despite the decision of the Council of Ministers to establish a different government. It consists of three three-men who comprise the Financial and Monetary Committee, the central bank and the central reserve. Their roles are to implement the regulations on the bank that regulates the banking sector, to monitor the deposit and transfer operations of the central bank and to ensure the compliance of the Rysk Act, and to oversee the general administration of the Rysk (Harkova, 2011, p. 44). In 2012, according to the information available publicly on the Rysk’s website, four members of the central bank were appointed at the beginning of 2013; the rest were appointed in 2016. They take charge of the supervision of the central bank, supervision relating to financial sector regulation, supervision of the deposit and transfer in the Russian banking system, and coordination of regulatory activities. The four other members of The Central Bank, including the head of the central bank, the head of the bank’s supervision department and its head of the central reserve, are not appointed by the central authorities of the country at that time (Davotovich, 2001, p. 43). Dvotovich is a member of the Central Bank of Russia’s Board of Governors and has the mandate to make decisions which
Discount Rate is the rate at which member banks may borrow short term funds directly from Federal Reserve Bank. The discount rate is one of the two interest rate set by the Federal, the other being the Federal funds rate (Discount Rate, 1997). “The Fed has the power to set the discount rate at which commercial banks borrow from the Federal Reserve Banks. From the commercial banks’ point of view, the discount rate is a cost of acquiring reserves. Lowering of the discount rate encourages commercial banks to obtain additional reserves by borrowing from the Federal Reserve Banks. When the commercial bank lends new reserves, the money supply increases” (McConnel-Brue, 2004, p 275). On the other hand an increase in the discount rate results in the opposite.
Monetary policy is one of the most widely used tools to influence the country’s economy. Using its monetary authority to control