U.S. Financial System
Impact of U.S. financial markets on economy.
Smooth running financial markets have a very important role in ensuring of a health and effective economy of any country. There is a relationship between economic growth and financial market. For example, in Financial structure and economic growth, 2001, chapter 1, written by Kunt and Levine came with a conclusion that;
In precise, many researchers have given additional findings on growth of finance and also a bolder assessment of the
unpremeditated relationship; industry level, cross country studies, firm level which gives a positive impact on the economic growth. U.S. financial markets assisted to effectively direct the saving flow and economical investment in a manner that enables the build-up of capital and production of services and goods. A well-managed financial market suits the wants of lenders and borrowers hence the growth of economy.
Impact of U.S. financial markets on business.
One of the challenges to business is to access credit. Financial markets main concern is lending because they are now in a confusion. Big companies need to get funds to keep running, also the small businesses which get more trouble in accessing funds. Hence the financial market impact the running of businesses regardless of their sizes (Jalloh, 2009).
Impact of U.S. financial markets to individuals.
The whole idea of business, financial markets and the economy of U.S. is for an individual (consumer).financial markets deal with the lending of cash to businesses as well as to individuals. This affects the prices of commodities and the living standard of an individual (Jalloh, 2009).
Roles U.S Federal Reserve
Federal Reserve plays a very important role in the U.S. financial market and payment system at large. They provide banking services to the depository institutions and the federal government. To the depository institution they help in maintenance of accounts and avail payment service, including checks collection, transfer of funds electronically and distribution of currency.to the federal government help in paying of treasury checks, act as fiscal agents, processing of electronic payments and issuing lastly help in redeeming U.S government securities (Baltagi, 2005). Generally it ensures that there is enough cash in circulation to meet U.S. public’s demand and ca be categorised into the following main functions:
- Steering the state’s monetary policy by swaying credit and money conditions in the economy in hunt of employment and steady prices.
- Managing and regulating banks and other financial institutions to ensure the safety of the state’s banking and financial system and to safeguard the credit rights of individuals.
- Upholding the steadiness of the financial system and containing risk that may rise in financial markets.
- Availing financial services to U.S. financial institutions,U.S. government, and foreign authorized institutions, and playing a role in managing the state’s payments Systems (Baltagi, 2005).
Role of Federal Reserve board and the chairman of the board.
The chairman of the Federal Reserve is the head of the central bank and an active executive member of board of the Federal Reserve. The chairman also serves as a member of international financial institutions, including, the board of the Bank for International Settlements, the board of governors of the International Monetary Fund and National Advisory Council on International Monetary and Financial Policies. He chairs every meeting under the board of governors of the Federal Reserve (Lopez,2002).
Board responsibilities are analysing the domestic and international economic and financial developments. Supervises Federal Reserve banks, payment systems and come up with the consumer credit protection laws. They play a very important role in today’s economy of the state by ensuring smooth flow of funds, loans and cash in the country and reduces the possibilities of inflation.
The influence of interest rates on U.S. and global environment.
When interest rates are raised by the Federal Reserve they affect the economy of the global environment as well as U.S. in the following manner;
- Spending of individuals becomes immediately after being given a loan without saving money to make proper purchase, the lower the interest rate the more consumers borrow money to make big purchases.
- The rise and falling of interest rates affects the inflation and recessions since the interest rates affects the prices of commodities.
An example of a global financial environment is Europe where deals with the strengthening ability of the euro area and its sovereign debt and banking sector (Lopez