FIN 620
Capital Markets Case Report
Southern New Hampshire University
FIN 620
Capital Markets Case Report
In this capital market case report, you will understand how the Federal Reserve System
sets policies that facilitate economic and financial activities to achieve maximum employment,
stable prices, and moderate long-term interest rates. Companies must review and assess the
impact of the Federal Reserve policies on their long-term financial planning. Companies must
understand and incorporate these policies into their financial strategic planning for a company to
be successful.
Federal Reserve
On December 23, 1913, President Woodrow Wilson signed the Federal Reserve Act into
law. The purpose of the Federal Reserve was to stabilize the United States economy. Before the
Federal Reserve, the United States economy had frequent bank failures and poor credit. "Unlike
the banking system today, banks in the colonies did not take deposits or make loans. Instead,
they issued paper currency (commodity money) backed by land or precious metals such as gold.
The primary sources of credit or loans came through wealthy merchants and other individuals"
(Federal Reserve Bank of San Francisco, 2012).
Role and Functions
Today's Federal Reserve is still partly responsible for stabilizing the United States
economy. The Federal Reserve handles the United States monetary policies, regulates the
banking industries, and provides financial services to the U.S. government. The Federal Open
Market Committee (FOMC) controls the economic policymaking and manages the United States
money supply.
, The Federal Open Market Committee handles the federal fund rate, and these rates are
considered short-term rates based on how well the economy is doing. Federal fund rates are
interest rates that commercial banks like J.P. Morgan Chase, Bank of America, or SunTrust
borrow and lend their excess reserves overnight from their reserve balance. "The Federal Open
Market Committee (FOMC), the monetary policy-making body of the Federal Reserve System,
meets eight times a year to set the federal funds rate" (Chen, 2020).
Another way to stimulate an economy is through Money Supply. When an increase in the
supply of money, we typically see lower interest rates. Keeping interest rates low generates more
Gross Domestic Product (GDP) due to businesses ordering more raw material and increasing
production. We also see consumer spending increase with purchasing homes and vehicles due to
saving money due to lower interest rates.
Lowering the Reserve Requirement also helps with stimulating an economy. The reserve
requirement is the amount of funds a bank must hold in reserve to meet its liabilities if a sudden
withdrawal is to happen. Lowering this requirement allows the bank to lend out money to
consumers or businesses that it would have to hold to meet its federal requirements.
Lastly, the Federal Reserve uses an open market operation. The open market operation is
when the Federal Reserve buys and sells government securities. The Federal Reserve could buy
back Treasury bills from financial institutions like J.P.Morgan Chase. When the Federal
Reserve is purchasing the Treasury bills, they only will buy from large securities dealers and
banks and not the general public.
Capital Markets Case Report
Southern New Hampshire University
FIN 620
Capital Markets Case Report
In this capital market case report, you will understand how the Federal Reserve System
sets policies that facilitate economic and financial activities to achieve maximum employment,
stable prices, and moderate long-term interest rates. Companies must review and assess the
impact of the Federal Reserve policies on their long-term financial planning. Companies must
understand and incorporate these policies into their financial strategic planning for a company to
be successful.
Federal Reserve
On December 23, 1913, President Woodrow Wilson signed the Federal Reserve Act into
law. The purpose of the Federal Reserve was to stabilize the United States economy. Before the
Federal Reserve, the United States economy had frequent bank failures and poor credit. "Unlike
the banking system today, banks in the colonies did not take deposits or make loans. Instead,
they issued paper currency (commodity money) backed by land or precious metals such as gold.
The primary sources of credit or loans came through wealthy merchants and other individuals"
(Federal Reserve Bank of San Francisco, 2012).
Role and Functions
Today's Federal Reserve is still partly responsible for stabilizing the United States
economy. The Federal Reserve handles the United States monetary policies, regulates the
banking industries, and provides financial services to the U.S. government. The Federal Open
Market Committee (FOMC) controls the economic policymaking and manages the United States
money supply.
, The Federal Open Market Committee handles the federal fund rate, and these rates are
considered short-term rates based on how well the economy is doing. Federal fund rates are
interest rates that commercial banks like J.P. Morgan Chase, Bank of America, or SunTrust
borrow and lend their excess reserves overnight from their reserve balance. "The Federal Open
Market Committee (FOMC), the monetary policy-making body of the Federal Reserve System,
meets eight times a year to set the federal funds rate" (Chen, 2020).
Another way to stimulate an economy is through Money Supply. When an increase in the
supply of money, we typically see lower interest rates. Keeping interest rates low generates more
Gross Domestic Product (GDP) due to businesses ordering more raw material and increasing
production. We also see consumer spending increase with purchasing homes and vehicles due to
saving money due to lower interest rates.
Lowering the Reserve Requirement also helps with stimulating an economy. The reserve
requirement is the amount of funds a bank must hold in reserve to meet its liabilities if a sudden
withdrawal is to happen. Lowering this requirement allows the bank to lend out money to
consumers or businesses that it would have to hold to meet its federal requirements.
Lastly, the Federal Reserve uses an open market operation. The open market operation is
when the Federal Reserve buys and sells government securities. The Federal Reserve could buy
back Treasury bills from financial institutions like J.P.Morgan Chase. When the Federal
Reserve is purchasing the Treasury bills, they only will buy from large securities dealers and
banks and not the general public.
