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Question1:
U. S. monetary policy is set by the Federal Open Market Committee (FOMC). The purpose
of the policy is to encourage maximum employment, stable prices, and reasonable longterm interest rates.
Please discuss the tools the Federal Reserve uses to control monetary policies. Include the
objective each tool is used to deliver. Expand on how the Federal Reserve System uses the
interest rate to affect the money supply.
In responding to your peers, compare and contrast your post to theirs. Support your
response with researched examples.
This is my part:
Monetary Policies Tools
Tools the Federal Reserve uses to control monetary policies
There are some tools that the government uses to control fiscal policies. The most common tool
is the federal fund rate. The federal fund rate refers to the rate of interest that is charged on the
banks for lending the Federal Reserve fund for a short duration of time, mostly overnight. Its
primary object is to maintain the government Federal Reserve requirement. Other critical
monetary tools include reserve requirements, margin requirements, and interest on reserves,
discount rate and discount window among others.
Reserve requirements refer to the stated amount of money that banks must deposit in the
Federal Reserve Bank. Its primary objective is to stimulate the growth of the economy. Margin
requirements refer to the margin, or lending institutions must retain as collaterals when they sell
securities to customers. Its primary objective is to reduce the number of traders and high risks of
inflation as experienced during the 2008 financial crisis. The discount rate, this is the rate of
discount that the Federal Reserve's charges the banks when they happen to borrow during the
discount window. Its primary object is to reduce excessive borrowing (Walsh 20).Interest in
reverse requirement refers to the interest that banks pay on the reserves and also the excess
reserves. Its primary objective is to enhance changes to the federal fund rates.
How the Federal Reserve System uses the interest rate to affect the money supply.
The Federal Reserve System increases the interest rate to reduce borrowing of money
hence decreasing the money supply in the economy. When the level of money supply in the
economy falls then the Federal Reserve System lowers the interest rates so that people can lend
more hence increasing the money supply in the economy.
Theses are from student one:
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Federal Reserve is a central bank that is lending money to other banks and charges interest.
Banks, on the other hand, add additional interest and different risk premiums to their client who
wishes to borrow this money. Feds is responsible for the monetary system which is the total
money circulation in the market. It expands the money circulation by buying government
securities and increasing government funds that allow to pay wages and keep the unemployment
low. It is responsible for the interest rate which is the cost of money in the market. When the
interest rate low, it stimulates people to spend and invest the money as they won’t get any benefit
in holding cash in the banks. Alternatively, Feds can slow the rate of growth, reduce the money
circulation and increase the interest rate when the economy is strong.
These are from student two:
Federal Reserve System
Basically, the FED is the U.S. central bank that makes it the most powerful single actor in the
U.S. economy. The Federal Reserve's most critical and visible function is to conduct monetary
policy. The Federal Reserve has three options for controlling the amount of money in the
economy. It is critical to see how all of these options are indirect and not directly controlling the
supply of money (Kimberly, 2017).
1. Open Market Operations
Open-market operations refers to buying and selling government bonds and is the primary tool
used by the Federal Reserve. People often say statements like, "The Fed is printing money",
where they refer to this option. If the Fed wants to increase the money supply to the economy, it
buys bonds. In other words, if you sell the government a treasury bond that you have earlier
purchased, you will get money in return. This money is now available to you for use, so
therefore when the Fed buys bonds, it’s increasing the money supply. The opposite is true when
the Fed sells bonds.
2. Reserve Requirement
The Fed sets the reserve requirement for the nation's banks and states that banks must hold at
least 10% (less for smaller banks) of their deposits on hand each night. If the Fed wants to
decrease money supply, it can increase bank’s reserve requirement. For example, if the reserve
requirement is 25% for every $1 deposited by customers, the Fed could increase this to 50% per
dollar decreasing the amount of money “created” by banks through the lending process by 25%.
3. Discount Rate
The Fed sets the discount rate, which moves up and down in tandem with the federal funds rate.
Banks pay the discount rate when they borrow from the regional Federal Reserve banks. When
the discount rate rises, banks pay more to borrow and tend to lend less, which boosts interest
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rates and reduces the available credit. When the discount rate falls, banks lend more freely,
flooding the market with credit and causing consumer interest rates to fall (Katherine, 2013).
Question2:
Please briefly share your thoughts and interests in global corporate finance. In your initial post,
address the following questions:
What do you perceive as an immediate threat (or threats) to global corporate finance now? What
do you perceive as opportunities?
How do you see the global corporate finance landscape shifting over the next 10 to 20 years?
What skills and knowledge do you hope to gain in this course and what are your career goals in
global corporate finance?
In responding to your peers, find common ground and/or remark on any differences of
experience, interest, and goals. Was there anything in their posts that you perhaps had not
considered?
This is my part:
Global Corporate Finance
What do you perceive as an immediate threat (or threats) to global corporate finance now?
The current global threat to global corporate finance is cybersecurity. With the advanced
level of technology, a significant amount of risk is embedded in the financial corporation since
cybersecurity issues continue to advance on a daily basis. Hackers are posing substantial threats
to the corporations since they can easily hack the systems of such corporations and result in a
significant financial loss.
What do you perceive as opportunities?
The current real opportunity in the corporate finance world is the continuous
advancement and adoption of e-commerce. Electronic-commerce gives more opportunities to the
corporates because it increases global financial transactions hence growing profitability for the
corporates.
How do you see the global corporate finance landscape shifting over the next 10 to 20 years?
The global corporate finance landscape is likely to grow and flourish in the next ten to
twenty years. Technology is seriously advancing, and the world is becoming smaller and smaller
from an economic point of view. Since global transactions are likely to increase in the next
decade, then the corporate financial landscape is expected to grow after a decade.
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What skills and knowledge do you hope to gain in this course and what are your career goals in
global corporate finance?
Some of the skills and knowledge that I hope to learn from this course include analytical
skills, communication skills, relationship skills, creativity, business acumen and tech-savviness.
My goals for the course will be to have the skills and knowledge to maximize profits, minimize
costs for my organization and maximizing market shares for my future organizations.
Theses are from student one:
Corporate finance consists of the financial activities related to running a corporation including its
capital, tools and analysis utilized to prioritize and distribute financial resources. Corporate
finance is also the actions management take to increase the value of the company through
planning and implementing management resources while balancing risk and profitability. Global
corporate finance is as a result of the increasing globalization of the international economy.
Global corporate finance is understanding and managing the economic dynamics and policy
issues of finance, trade and investment flows that global businesses contend with in different
countries (Kim & Kim, 2015).
I perceive trade protectionism as a threat, as free trade has helped economics recover during
economic crisis and developing countries get more developed. Country’s view of trade
restrictions, attitudes towards balance of payments and balance of trade, convertible currency,
trade policies are threats not only to businesses in a certain market but also the types and
efficiency of any transactions that occur (Samii, 2011). Some countries have depreciated their
currencies to boost exports, and other countries uses import duties, tariffs and restrictions
(Hisrich, 2016). For example, the Nigeria government restricts the exportation of the profit of an
international company.
Some of these challenges is strengthening financial control and risk management. For example,
currency swaps, forward exchange rates and spot exchange rates has provided global companies
with more protection against wide fluctuations in exchange rates. These threats also provide
international companies the opportunity to expand to more countries, as this reduces investment
risk, because the macroeconomic forces affecting companies differ from country to country. The
loss incurred in an investment in one country can be offset by gains in investment in another
country (Samii, 2011).
Rapid technological advancement will increase the pace of change and create new opportunities
and improvement in global finance. Example, internet trade will increase currency price
transparency and increase the ease of trading.
My goal is to achieve skills and knowledge that will help me in financial planning and control, in
the acquisition of funds and the allocation of funds, to be able to make global financial decisions
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and to manage risks and challenges faced in the competitive global environment as I plan to be a
global entrepreneur after school.
Works cited
Walsh, Carl E. Monetary theory, and policy. MIT press, 2017.
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