Example research essay topic: Open Market Operations York Stock Exchange - 666 words

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The Federal Reserve As far as we know, the Federal Reserve conducts monetary policy of the U. S. Monetary policy has two main objectives: to promote stable prices and to promote maximum sustainable employment and output. The Federal Reserve implements monetary policy in several ways: changes in the discount rate, changes in required reserves, and open market operations. The first two options are rarely exercised but the third one awakens our interest. By operating at open markets, the Federal Reserve is able to stimulate the U.

S. economy. Lets try to answer several questions. As far as we know, the Federal Reserve conducts open market operations through the purchase and sale of government bonds. Can the Federal Reserve conduct its monetary policy through the purchase and sale of stocks on the New York Stock Exchange (NYSE)? The part of our question is also interesting.

Lets suppose the Federal Reserve purchased gold or foreign currency. How can this purchase affect the domestic money supply? In order to answer these questions, we need to understand the impact of the Federal Reserve open market operations. First of all we must understand the relation between the reserve measures and the open market operations. The operations usually include the sale or purchase of Treasury securities. The purchases add to reserves because they decrease reserve pressure.

The sales drain reserves because they increase reserve pressure. These operations (sales or purchases that can be either temporary or permanent) can involve treasury bonds or bills. Now, lets come back to New York Stock Exchange and the Federal Reserve. As far as the basic objective of the Federal Reserve is to conduct safe monetary policy and to stabilize the economy, the Federal Reserve tries to avoid risky operations at the open market. The Federal Reserve undertakes all efforts to minimize any disruption to the market place.

Fed takes into account all possible risks and market conditions even when they choose the day to conduct outright operations with bonds. The Fed tries to minimize the risk of operations in instable, rapidly falling or rising markets because the Federal Reserve do not wish to impede price adjustment and to contribute to market volatility. As far as we know, bonds are generally considered more stable and predictable than stocks. Besides, bonds are generally considered to be much safer investments than stocks. In such a way, the idea to conduct the Federal Reserves monetary policy through the purchase and sale of stocks on the New York Stock Exchange (NYSE) seems to be risky and can result in negative consequences for the U.

S. economy. Now, lets examine the Federal Reserve and purchase of gold or foreign currency. As far as we know, the Federal Reserve conducts operations with foreign currency. Fed is able to purchase or sell dollars in exchange for foreign currency. Before transition to a system of floating (or flexible) exchange rates, there was a system of fixed exchange rates and the U.

S. authorities had to sell and buy dollars against gold in order to keep the dollar price of gold (approximately $ 35 per 1 ounce). Nowadays, the Federal Reserve can sell foreign currency (purchase dollars) in order to absorb some of the selling pressure on dollar. In case the Federal Reserve purchases foreign currency (sells dollars), it is able to counter upward pressure on the foreign exchange value of dollar. In such a way, if the Federal Reserve purchases foreign currency, the supply of Fed balances to American depository institutions is influenced by these operations.

A purchase of foreign currency increases the supply of balances, and, on contrary, when Fed sells foreign currency it decreases the supply of balances when the Fed credits the account of sellers depository institutions at Fed. However, all operations with foreign currency are directed by the FOMC with participation of the treasury. All such operations are not intended to alter the supply of the funds rate or bank reserves and are not used as a tool of monetary policy.

Research essay sample on Open Market Operations York Stock Exchange