Introduction to Finance: Markets, Investments, and Financial Management, Fourteenth Edition

Chapter 4. Federal Reserve System

Chapter Learning Objectives:

AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:

• Identify three weaknesses of the national banking system that existed before the Federal Reserve System.

• Describe Federal Reserve membership in terms of who must join and who may join.

• Describe the composition of the Fed Board of Governors.

• Discuss how the Fed uses reserve requirements to carry out monetary policy.

• Discuss how discount rate policy is employed by the Fed.

• Describe the Fed's use of open-market operations to alter bank reserves.

• Describe the ways in which the Reserve Banks accommodate the clearance and collection of checks.

• Discuss structural characteristics of central banks located in selected foreign countries.

Where We Have Been. . .

In Chapter 3 we discussed the types and roles of financial institutions that have evolved in the United States to meet the needs of individuals and businesses and help the financial system operate efficiently. We also described the traditional differences between commercial banking and investment banking followed by coverage of the functions of banks (all depository institutions) and the banking system. By now you also should have an understanding of the structure and chartering of commercial banks, the availability of branch banking, and the use of bank holding companies. You also should now have a basic understanding of the bank balance sheet and how the bank management process is carried out in terms of liquidity and capital management. ...