Complexities of the US Financial Systems, Research Paper Example

There is a very strong and positive relationship between financial markets and the economy in terms of economic performance and economic growth. According to research, the level of financial growth and development applies a positive and considerably large impact on economic growth. The financial markets play the crucial role of ensuring the efficient channeling of savings and investments within the economy(Hetzel, 2008). This facilitates the accrual of capital that is crucial in the production of goods and services within the economy. A financial market that is diverse in its operations and instruments influences lenders and borrowers within the economy.

The U.S. financial markets are responsible for the efficient flow of capital throughout the economy. This determines the availability of capital in the economy as borrowers (businesses) can only get capital from lenders (financial institutions) if there is adequate and efficient flow of capital through the financial markets in which they are the major players.Individuals within the economy (consumers) can only consume within their budget limit(Kemmerer, 2010). This budget limit is determined by the availability of financial resources to a given individual. Financial markets play a crucial role in allowing individuals gain capital through either trading of financial instruments or by affecting the availability of credit that is given by financial institutions within the financial market. This in turn affects the ability of individual units in the market to consume. Financial markets are therefore essential to the availability of capital to be saved, invested or consumed by individual units within the economy.

According to(Melicher & Norton, 2011), The U.S. Federal Reserve is responsible for setting up monetary policy and regulating the banking system. The Federal Reserve oversees banking system money in exchange as hope to reduce the financial instability, improve quality of financial services and strengthen the payment system. Chairmen play a role in regulated money supply to be sure promoted economic stability. The Board involves seven governs that is appointed to the president and confirmed by the Senate. The board of governors is to protect the monetary policy and oversees the financial market. The responsibilities of the Board of Governors are to guide monetary policy and to make certain domestic and international economic and financial conditions meet eye to eye. They are guidelines to make sure consumer banking and regulating laws are appropriate for trade within the United States and international trading.
Interest rates influence both the U.S. and global financial environmentin two major ways. The interest rates affect the affordability and hence availability of capital within the economy. This affects the amount of savings and investments that dictate the economy’s growth. These interest rates in turn affect the global financial environment by affecting the value of the US Dollar against other currencies(Hetzel, 2008). Owing to the fact that US Dollars form the foundation of many financial transactions, the global financial environment is directly affected.

In conclusion, the Federal Reserve systems are members of the banking system that work with the district banks. The concept of working with the world economy is important in our society today, to make inform decision.

References

Hetzel, R. L. (2008). The monetary policy of the Federal Reserve: A history. Cambridge: Univ. Press.

Kemmerer, E. W. (2010). The ABC of the Federal Reserve System. Breinigsville: Nabu Press.

Melicher, R. W., & Norton, E. A. (2011). Introduction to Finance (14th ed.). Hoboken, NJ: John Wiley & SOns.

Meltzer, A. H. (2009). A history of the Federal Reserve: 1970-1986. Chicago: University of Chicago Press.