Term
| 1. What are typical central bank tasks? Explain how the Fed fulfills these jobs. |
|
Definition
| Functions as both the Government’s bank and Banker’s Bank. For the government the Fed holds deposits of the U.S. Treasury. It maintains the Treasury’s accounts. The treasury also holds deposit accounts at private depository institutions. It also acts as the fiscal agent (issues, services, and redeems debts on the Trasury’s behalf). For the bankers it regulates externalities ( outside transactions). It also is a lender of last resort, to prevent lack of confidence in the banking system. |
|
|
Term
| 2. Describe each of the major assets on the Fed’s balance sheet. |
|
Definition
Treasury securities – 92.6 percent of assets, 80 percent of which are bills and notes, the remainder bonds (maturities exceeding ten years)
U.S. Agency securities – other debt instruments issued by other U.S. government agencies.
Discount window loans – the Federal Reserve lends to private depository institutions via the discount window facilities of the Federal Reserve Banks. A very small number
Gold certificates – Remain as a constant reminder of the former adherence to a gold standard. They were issued from the Trasury to the Fed, but the proportionate size declines as the absolute size of the Fed increases.
Special Drawing Right (SDR) certificates – International Monetary Fund documents, used as a sort of international currency , however continues to decline in relative importance.
Foreign currency reserves – The fed maintains a portfolio of assets denominated in the curreicnes of other nations.
Cash items in the process of collection – payments that have not be cleared |
|
|
Term
| 3. Describe each of the major liabilities on the Fed’s balance sheet. |
|
Definition
Federal Reserve notes – 88 percent of liabilities and equity capital. Used to make most of our small purchases of goods and services. Sorta like a dollar loan to you by the bank, if the Bank closed it would owe you a dollar because you could not redeem.
Bank reserve deposits – Reserve deposits of depository institutions to meet legal requirements
U.S. Treasury deposits – used by Tr. To make payments
Foreign official deposits – foreign government deposits , like checking accounts made by banks like Bank of England/Japan
Deffered availability cash items – payments that the Fed promised to another party or that it has made but that have yet to clear.
Equity capital – ownership shares of banks that are members of the FRS. 3.0 percent, very low number. |
|
|
Term
| 4. What are the most important assets and liabilities of the Fed? |
|
Definition
| Treasury securities and federal reserve notes as well as reserve deposits |
|
|
Term
| 5. Which assets and liabilities of the Fed relate to check clearing? |
|
Definition
| Deferred availability cash items, payments the Fed has promised to another party or that it has made but that have yet to “clear”. Cash items in the process of collection, when they receive payments from other parties that it credits but have not yet cleared. |
|
|
Term
| 6. Describe the source of equity for the Fed. |
|
Definition
| Ownership of the Federal Reserve System district banks |
|
|
Term
| 3. Explain how inflation is measured. |
|
Definition
| Inflation is measured using the GDP price deflator, or P=overall price level, i.e. Y=y*P where y is REAL GDP, Y is nominal can also be used as y=Y/P |
|
|
