The U. S. financial system has many complexities and it is impacted by several environmental influences, including federal regulations and the economy.
These factors not only effect the economy, but also business and individuals. The U. S. Federal Reserve, the Federal Reserve Chairman, and Board, also play a direct role into the effectiveness of today’s economic environment. Some of the complexities that impact the U.
S. also have a direct influence on the global financial environment. These complexities include the interest rates and the exchange rate. The U.
S. inancial market has a major impact the economy, businesses, and individuals. Financial markets help to skillfully direct the flow of savings and investment in the economy in ways that facilitate the increase of capital and the production of goods and services. The worth of credit and returns on investment provide signs to producers and consumers. These signs help direct funds from savers and businesses to the consumers, businesses, governments, and investor.
Also, the existence of healthy financial markets and institutions also accelerates the international flow of funds between countries.In addition, efficient financial markets and institutions tend to lower search and transactions costs in the economy. By providing a large range of financial products, with fluctuating risk and pricing structures as well as maturity a well-built financial system offers products to participants that provide borrowers and lenders with a close match for their needs. Businesses, individuals, and governments in need of capital can easily discover which financial institutions or which financial markets may offer funding and what the cost will be for the borrower.This will allow investors to compare the cost of financing to their anticipated return on investment, so they can make the investment choice that best suits their needs.
In this way, a financial market directs the distribution of credit through the economy and aids the production of goods and services. The Federal Reserve plays a significant role in the U. S. payments system. The twelve Federal Reserve Banks offer banking services to depository institutions and to the federal government.
For depository institutions, they maintain accounts and provide various payment services, including collecting checks, electronically transferring funds, and distributing and receiving currency and coin. For the federal government, the Reserve Banks act as financial agents, paying Treasury checks, processing electronic payments, and issuing, transferring, and redeeming U. S. government securities. The Fed controls financial institutions, manages the nation's money and influences the economy.By increasing and decreasing the interest rates, creating money and using a few other tricks, the Fed can either fuel or slow down the economy.
This effect helps maintain low inflation, high employment rates, and manufacturing output. Currently, the Federal Reserve is keeping the interest rates at a minimum to stimulate the Economy. If the real interest rate is low, the costs of living, doing business and investing are also low. This stimulates the economy because home and car loans are more affordable.
If people can borrow more, they'll spend more. The chair of the Federal Reserve, formally known as the Chair of the Board of Governors of the Federal Reserve System, is the head of the central banking system of the United States and the active executive officer of the Board of Governors of the Federal Reserve System (About the Fed, 2013). The chairman reports to Congress twice annually on the Federal Reserve’s activities and monetary policy and testifies before Congress on numerous other financial issues.The chair maintains regular contact with the President’s Council of Economic Advisers and other key economic officials including the secretary of the Treasury. Under the chairman’s guidance, the Board of Governor’s duties includes analysis of domestic and international financial and economic developments. The board also oversees and regulates the Federal Reserve Banks, exercises accountability in the nation’s payments system, and administers consumer credit protection laws including the Truth in Lending, Equal Credit Opportunity, and Home Mortgage Disclosure Acts.
Changes in interest rates can have both positive and negative effects on the U. S. markets. When the Federal Reserve Board alters the rate at which banks borrow money, this has a flowing effect across the entire economy. The existence of interest allows borrowers to spend money immediately, instead of waiting to save the money to make a purchase.
The lower the interest rate, the more people are willing to borrow money to make big purchases, such as houses or cars.When clients pay less in interest, this gives them more currency to spend, which can create a domino effect of increased spending throughout the economy. Higher interest rates mean that consumers don't have as much disposable income and must cut back on spending. When higher interest rates are joined with increased lending standards, banks make fewer loans. This disturbs not only customers, but also businesses and farmers, who cut back on expenses for new equipment, consequently slowing production or reducing the number of employees.Exchange rates play a vital role in a country's level of trade, which is dangerous to most every free market economy in the world.
For this purpose, exchange rates are among the most watched analyzed and governmentally manipulated economic measures. Numerous factors regulate exchange rates, and all are connected to the trading relationship between two countries. A country with a constantly lower inflation rate displays a rising currency value, as its purchasing power increases comparative to other currencies.Foreign investors inevitably seek out stable countries with strong economic performance in which to invest their capital. A country with positive characteristics will draw investment funds away from other countries perceived to have more political and economic risk.
Political mayhem, for example, can cause a loss of assurance in a currency and a movement of capital to the currencies of more stable countries. A decline in the exchange rate clearly decreases the purchasing power of income and capital gains resulting from any returns.Furthermore, the exchange rate influences other income factors such as interest rates, inflation and even capital gains from local securities. When looking at the U. S. financial system it’s not just one entity.
This system is a complexities of small entities formed together. The U. S. Federal Reserve, the Federal Reserve Chairman, and Board, interest rates and exchange rate all play a specific role within the U. S.
financial system. As individual units these entities are points less. But, together they make up a well balance financial system.
