Country study question. Give some examples of how well and how poorly the financial system accomplishes its tasks. A tighter monetary policy will reduce the level of economic activity through credit availability, wealth and exchange rate channels. Provide a clear explanation of how a tighter monetary policy would effect the financial system and on the economy as it works through TWO of those channels. The Federal Reserve frequently adjusts reserve requirement ratios in order to guide the economy away from recessions.
Monetary policy is an excellent tool for avoiding recessions.
With a currency board the central bank is NOT able to finance the government deficit. In the U.S., the Treasury sells government bonds directly to the Fed. Give an example of an innovative financial instrument and explain why the innovation took place. Paul Wachtel, mutual funds, Federal Reserve Bank of NY, commercial banks, pension funds 19. The issuers can payoff a convertible bond at any time prior to maturity.