Surname 1 Surname 6 The open market operation in the Federal Reserve Name: Course: Tutor: Date Q. 1. The effects of open market operation using T-accounts Through the open market the Federal Reserve is able to influence the market by affecting the expectation of the participants in the market and changing the supply of money. The open market operation mainly entails the sales of reserves securities or the purchase that represents a considerable amount of trading in the market. The purchase of dollars from the public has the impact on the financial markets such as U.S dollar exchange rates, Treasury bond, Eurodollar and Treasury bill. Therefore, the main purpose of this essay is to address the impact of open market of the Federal Reserve on the fiscal markets. The open market operation is the key tool used by the central bank or Federal Reserve to implement the monetary policies that enable the sales and purchase of securities. Therefore this tool plays a major role in the supply of funds and maintaining the Federal Reserve’s rate which is the main objective of the committee established by the Federal Open Market. However, the security that is certified to be sold or purchased and supplied by the Federal Reserve is limited by the authority that conducts the Open Market Operation. Q. 2. The Current Federal Funds Rate Federal funds rate is the interest rate used by the depository institution to lend moneys overnight to other bank institution as per the Federal Reserve regulations. Federal funds rate which is the most persuasive interest rates is only usable to the creditworthy institutions depending on their transactions overnight. The interest rate that is paid by the borrowing bank is negotiated by the two banks and the weighted average is determined bearing in mind the Federal Reserve’s effective rates. In addition, the target rate of the federal is determined after a lengthy discussion with the Federal Open Market group members. Open market is used to ensure effectiveness in the federal funds rate and influence the money supply in the economy of most countries like U.S. The weighted average of federal reserves is mostly calculated after closing the transactions of the previous day. However, according to the current statistics the federal rates have been influenced or affected by the groups of brokers. Therefore the rates fluctuate depending on the high and low rates transacted by the ICAP’s brokers. As per the Federal reserves, discount rates is the charged interest rate directed to the depository institutions like the commercial banks depending on the loan received and the lending facility used. Three discount programs are being offered by the Federal funds banks to bank institution namely: seasonal credit, secondary credit and primary credit. The short-terms rates of the federal have declined since 2003 due to the high volatility that affected the fund rates. From the analysis of the key factors that influence t ...

1. Surname 1
Surname 6
The open market operation in the Federal Reserve
Name:
Course:
Tutor:
Date
Q. 1.
The effects of open market operation using T-accounts
Through the open market the Federal Reserve is able to
influence the market by affecting the expectation of the
participants in the market and changing the supply of money.
The open market operation mainly entails the sales of reserves
securities or the purchase that represents a considerable amount
of trading in the market. The purchase of dollars from the

2. public has the impact on the financial markets such as U.S
dollar exchange rates, Treasury bond, Eurodollar and Treasury
bill. Therefore, the main purpose of this essay is to address the
impact of open market of the Federal Reserve on the fiscal
markets.
The open market operation is the key tool used by the central
bank or Federal Reserve to implement the monetary policies
that enable the sales and purchase of securities. Therefore this
tool plays a major role in the supply of funds and maintaining
the Federal Reserve’s rate which is the main objective of the
committee established by the Federal Open Market. However,
the security that is certified to be sold or purchased and
supplied by the Federal Reserve is limited by the authority that
conducts the Open Market Operation.
Q. 2.
The Current Federal Funds Rate
Federal funds rate is the interest rate used by the depository
institution to lend moneys overnight to other bank institution as
per the Federal Reserve regulations. Federal funds rate which is
the most persuasive interest rates is only usable to the
creditworthy institutions depending on their transactions
overnight. The interest rate that is paid by the borrowing bank
is negotiated by the two banks and the weighted average is
determined bearing in mind the Federal
Reserve’s effective rates. In addition, the target rate of the
federal is determined after a lengthy discussion with the Federal
Open Market group members.
Open market is used to ensure effectiveness in the federal funds
rate and influence the money supply in the economy of most
countries like U.S. The weighted average of federal reserves is
mostly calculated after closing the transactions of the previous
day. However, according to the current statistics the federal
rates have been influenced or affected by the groups of brokers.
Therefore the rates fluctuate depending on the high and low
rates transacted by the ICAP’s brokers.
As per the Federal reserves, discount rates is the charged

3. interest rate directed to the depository institutions like the
commercial banks depending on the loan received and the
lending facility used. Three discount programs are being offered
by the Federal funds banks to bank institution namely: seasonal
credit, secondary credit and primary credit. The short-terms
rates of the federal have declined since 2003 due to the high
volatility that affected the fund rates. From the analysis of the
key factors that influence the rates, some of the forces that
caused the fall of volatility were due to the earlier increases of
the rates. The fall in volatility in the recent years has affected
the participants in the market and hence affecting the business
in the banking institutions.
Q. 3.
Federal Open Market Committee
The committee of the Federal Reserve meets frequently to
assess the economy of the financial institution and discuss the
actions to be taken for the central bank and other banking
institutions to grow. This process takes place eight times in a
year after a period of seven weeks. Further the members of the
federal may have additional meetings for the purpose of
implementing and amending the target rate. From the minutes
and actions taken by the Federal Reserve, it is clear that the
system was designed to regulate the financial institutions to
ensure consumers get fair services in business system and
receive sufficient information.
Q. 4.
Entities That Control Discount Rate
Some of the entities that contribute to the control of the
discount rate in the Federal Reserve’s include: agencies of the
foreign banks, credit unions, saving and loan association,
commercial bank, savings bank and other domestic banking
entities. The changes that are made by these entities reflect the
movement and achievement attained by the Federal Reserve.
For depository institutions to comply with the Federal Reserve,
they must satisfy some requirements set by the federal to ensure
smooth running of financial institutions. The requirements that

4. are imposed in all the financial institutions including savings
banks, commercial bank, credit unions and savings and loan
associations. The financial institutions holds vault cash is
sufficient way as a way of meeting the requirements set by the
Federal Reserve. In addition, the requirement of the Reserve
balance that demands the balance need to be realized on average
and maintained periodically is a good structure that ensures
flexibility and good management in the Federal Reserve. On
the other hand, open market operation has been the basic tool
and flexible means of realizing the objective of the monetary
policy.
Q. 5.
The Structure and Independence of The Federal Reserve System
Accountability, independence, transparency among other
responsibility was the concepts that were considered during the
evolution and structuring of the central bank. Both the Federal
Reserve and the European Central Bank play a significant role
in central bank and other baking institutions. Basically the two
institutions have decentralized structure, use same monetary
tools and are independent in carrying out their activities and
duties.
In the context of organization and the responsibility of
supervising the banking sector, the two institutions differ. This
is because European Central Bank plays an important role in the
monetary interactions and economy globally. It also belongs to
the world leading economic area and has largest shares in GDP
worldwide. In addition ECB covers 15 countries compared to
Federal Reserve that has only 12 districts. It is therefore clear
that despite the similarity between the two institutions, there are
some differences between Fed and ECB.

5. WORK CITED
Bodie, Zvi, and Robert C. Merton. Finance. Upper Saddle River,
NJ: Prentice Hall, 2000. Print.
Prochnow, Herbert V. The Federal Reserve System. New York:
Harper, 1960. Print.
The Federal Reserve System: Purposes and Functions.
Washington, D.C: Board of Governors, 1974. Print.
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