The role, functions, and operational mechanics of the Federal Reserve System. Impacts on capital markets.

The role, functions, and operational mechanics of the Federal Reserve System. Impacts on capital markets.

In this paper, you will discuss the role, functions, and operational mechanics of the Federal Reserve System and explore how the Federal Reserve impacts capital markets.

Imagine you are the chief financial officer (CFO) of the Fortune 500 company AT&T. Given the positive macroeconomic trends, including improvements in labor market conditions, the Federal Reserve recently increased the federal funds rate. With the continued improvement in economic outlook, the Federal Reserve is poised to increase the federal funds rate again in the near future. The Fed believes that with the gradual increase in monetary policy, the economic activities and the labor market will strengthen and inflation will remain consistent. As the CFO of your company, you must analyze and evaluate the likely impacts of the aforementioned Federal Reserve monetary policy actions to the wider economy (and specifically, to capital markets), as well as the resulting implications for your firm. Based on your assessment, you will put forth various recommendations to the company’s board for improving their financial position while safeguarding against corporate risk.

A. Illustrate the primary role and functions of the Federal Reserve System using specific examples. For example, what are its key macro-activities and their economic consequences? Accurately illustrates the primary role and functions of the Federal Reserve System using specific examples of its key macro-activities and their economic consequences

B. Explain the operational mechanics of the Federal Reserve System in terms of its structures and governance using specific details. In other words, how does the system work on a day-to-day basis? Accurately explains the operational mechanics of the Federal Reserve System in terms of its structures and governance with specific details.

C. Illustrate the potential for the Federal Reserve’s monetary policies to impact capital markets using specific examples. For example, how can the Federal Reserve “make waves” in capital markets through their communications or lack thereof? Accurately illustrates the potential for the Federal Reserve’s monetary policies to impact capital markets using specific examples.

Solution Preview

A: The Federal Reserve has been tasked with the primary role of maintaining and provision of a valid payment structure. Another primary function is the conducting of monetary guidelines and the supervision and regulation of how banks operate. The Federal reserve system tool of operation is the purchasing and selling of government securities that may get used to raising funds for the government and helps in the growth of the economy. The open market operations help the federal reserve to influence the interest rates in the market which get given for a short-term period.

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