Question: Suppose the Federal Reserve s discount rate is 4 percent This
Suppose the Federal Reserve's discount rate is 4 percent. This afternoon, the Federal Reserve Board announces that it is approving the request of several of its Reserve Banks to raise their discount rates to 4.5 percent. What is likely to happen to other interest rates tomorrow morning? Carefully explain the reasoning behind your answer.
Answer to relevant QuestionsSuppose the Fed purchases $500 million in government securities from a primary dealer. What will happen to the level of legal reserves in the banking system and by how much will they change? Describe the typical organization of a smaller community bank and a larger money-center bank. What does each major division or administrative unit within the organization do?Can you see any advantages to allowing interstate banking? What about potential disadvantages?When must a holding company register with the Federal Reserve Board?Why is the creation (chartering) of new banks closely regulated? What about nonbank financial firms?
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