Complexities in the U.S. Financial System
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Ways in which U.S Financial Market Impact Economy
There is a positive correlation between growth of U.S economy and development of financial market. Therefore, large development of financial market exerts a huge, positive effect on growth of economy. Financial market in an economy facilitates effective flow of investments and savings. This facilitates accumulation of capital and faster production of goods and services in the market (Paulson, 2010). Therefore, when there is a well-developed financial institutions and markets combined with diverse financial products, it create good business environment for lenders and borrowers. This helps to develop the overall economy of the country.
Financial markets provides good transaction environment for investors to offer certain services in the market. It also helps them to diversify and gives protection against risks in the market. Financial institutions and financial institutions together lead to growth of economy. In addition, huge financial markets characterize with large trading activity provides more liquidity in the economy (Paulson, 2010). This helps to increase trading opportunities. U.S financial market is the best developed globally.
Impacts on Business and Individuals
Moreover, well-established financial markets provide positive impacts to businesses. This is because businesses are able to get higher returns from their investments. Besides, it facilitates easy access of credit from financial institutions in case it would like to borrow money. Similarly, individuals can access credit from financial institutions at lower interest rate from the moneylenders (Paulson, 2010). It is beneficial to individual because they transact their businesses at lower transaction cost hence the cost of doing business for the individual is reduced.
Roles of the U.S. Federal Reserve
Federal Reserve is the central bank of United States of America. It serves the country with a safer, more stable and flexible financial and monetary services (Mayer, 2001). It has the following roles, first, it formulate the countrys monetary policy. This is conducted through influencing credit and money condition in U.S economy for the purpose of employment and stable prices (Paulson, 2010). Secondly, it supervises and control financial institutions such as banks. This ensures that the nations financial systems are safe in order to protect the credit rights of consumers. Thirdly, it provides financial services to the government, foreign official institutions and U.S financial institution (Mayer, 2001).
The Federal Reserve Chairman,
The chair of Fed is the head of central banking system in U.S. The chair is active executive officer of the Board of Governors of the Federal Reserve System (Mayer, 2001). In addition, he/she reports to the congress twice annually on the activities of Federal Reserve and monetary policies and other issues. He/she maintain contact with the President, Secretary of Treasury to discuss key financial policies.
Roles of Federal Reserve Board
The board is responsible for analysis of domestic and international economic and financial development. It also monitors the Federal Reserve banks. In addition, it manages laws that protect consumer credit rights (Mayer, 2001). It is also responsible for the countrys payment system. The Board also regulates and administers the countrys banking system that includes bank holding companies, state-chartered banks, and foreign banks in the U.S.
Interest rates influence the U.S. and Global Financial Environment
Interest rate affects the U.S and global financial environments by influencing the inflation and consumer and business spending. For instance, in United States when interest rate falls or raises it changes the Federal Funds Rate. The rate is used by banks in United States to borrow money (Mayer, 2001). When Federal Funds Rates changes it affects inflation of the nation. When inflation rate is too high it reduces the purchasing power in domestic market. On the other hand higher interest rate influences global environment (Mayer, 2001). For instance, when interest rates in global market are high people are not will to borrow money to transact in global market. This reduces global productivity.
References
Mayer, M. (2001). The Fed (1st ed.). New York: Free Press.
Paulson, H. (2010). On the brink (1st ed.). New York: Business Plus.