This presentation covers regulatory framework of international finance from an International Perspective – Federal Bank, European Central Bank and guidelines for international investments given by International Chambers of Commerce (ICC).
4. What is the Fed?
Central bank of the
United States
Established in
1913
Purpose is to
ensure a stable
economy for the
nation
4Mrs. Charu Rastogi, Asst. Professor
5. Conduct the nation’s monetary policy
Supervise and regulate banking
institutions
Operate a nationwide payments system
5Mrs. Charu Rastogi, Asst. Professor
6. Board of Governors
12 Reserve Banks
Federal Open
Market Committee
6Mrs. Charu Rastogi, Asst. Professor
7. Seven members
◦ Appointed by the president
◦ Confirmed by the Senate
◦ Serve 14-year terms
Work includes:
◦ Analyzing economic
developments
◦ Supervising and regulating
the operations of Federal
Reserve Banks
◦ Exercising responsibility in
the nation’s payments
system
7Mrs. Charu Rastogi, Asst. Professor
8. Work includes (cont’d):
◦ Administering consumer
credit protection laws
◦ Authorizing changes in
banks’ reserve
requirements
◦ Supervising Fed member
banks and other financial
entities
◦ Authorizing changes in
the Fed’s discount rate
8Mrs. Charu Rastogi, Asst. Professor
10. Operate a nationwide payments
system
Distribute the nation’s currency
and coin
Supervise and regulate member
banks and bank holding
companies
Serve as banker for the U.S.
Treasury
Contribute to monetary
policymaking through Bank
presidents’ participation in the
FOMC
10Mrs. Charu Rastogi, Asst. Professor
11. Promote safety and
soundness of banking
system along with other
regulatory bodies
◦ FDIC, OCC, OTS, state banking
regulators
Ensure compliance with laws
and regulations
Oversee international
banking interests
Administer consumer credit
protection laws
11Mrs. Charu Rastogi, Asst. Professor
12. Supply currency and
coin to banking
institutions
Clear more than one-
third of nation’s
checks
Transfer funds
electronically (ACH,
Fedwire)
Serve as bank for the
U.S. Treasury
12Mrs. Charu Rastogi, Asst. Professor
13. Gather, analyze and
disseminate economic
data
Focus on all aspects of
the economy (regional
to international levels)
Analyze regional and
national markets and
economic data
Design and test
econometric models
used to produce hard
data that factor into
policymaking decisions
13Mrs. Charu Rastogi, Asst. Professor
14. Policy changes
affect the nation’s
supply of money
and credit.
Actions have real
short- and long-
term effects on the
economy.
14Mrs. Charu Rastogi, Asst. Professor
15. Sets and directs U.S. monetary
policy
Seven governors
Five presidents (New York and
four others on a rotating
basis)
Nonvoting presidents
participate fully
Final interest rate decision is
made by the 12-member
Federal Open Market
Committee (FOMC)
15Mrs. Charu Rastogi, Asst. Professor
17. Discount Rate
◦ The interest rate charged by the Federal Reserve
to banks that borrow on a short-term (usually
overnight) basis
Reserve Requirements
◦ The amount of money banks must keep on
reserve at the Fed
Open Market Operations
◦ Buying and selling Treasury securities between
the Fed and selected financial institutions in the
open market
◦ Most important tool; directed by the FOMC
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Mrs. Charu Rastogi, Asst.
Professor
18. Federal Funds Rate
◦ The market-based interest rate
which banks charge each other on
overnight loans of their reserve
balances held at the Fed. The Fed
achieves this rate through Open
Market Operations.
◦ A target rate
Discount Rate
◦ Applies to short-term loans made
directly to commercial banks from
the Federal Reserve System.
◦ Typically set at 1 percentage point
above the Federal Funds Rate.
18Mrs. Charu Rastogi, Asst. Professor
19. Each head office and branch of the Federal
Reserve System has a local Board of Directors.
◦ 7–9 individuals
Board members provide various perspectives
and economic data from different regions and
industries.
Boards of directors vote on the discount rate.
Boards of directors influence policymaking at
the national level through ―real-world‖ input.
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Mrs. Charu Rastogi, Asst.
Professor
20. Generally, low interest rates
stimulate the economy
because there is more
money available to lend.
◦ Consumers buy cars and
houses.
◦ Businesses expand, buy
equipment, etc.
Why does the Fed lower
interest rates?
◦ If inflation is in check, lower
rates stimulate economic
activity, thus boosting
economic growth.
20Mrs. Charu Rastogi, Asst. Professor
21. The Fed raises interest
rates as an effective
way to fight inflation.
◦ Inflation—a sustained rise
in the general price level;
that is, all prices are
rising together.
Consumers pay more
to borrow money,
dampening spending.
Businesses have
difficulty borrowing;
unemployment rises.
21Mrs. Charu Rastogi, Asst. Professor
23. The ECB is the central bank for Europe's
single currency, the euro.
It is one of the seven institutions of the
European Union (EU) listed in the Treaty on
European Union (TEU)
The ECB’s main task is to maintain the euro's
purchasing power and thus price stability in
the euro area.
The euro area comprises the 17 European
Union countries that have introduced the
euro since 1999.
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Mrs. Charu Rastogi, Asst.
Professor
24. The capital stock of the bank is owned by the
central banks of all 27 EU member states.
The bank was established by the Treaty of
Amsterdam in 1998, and is headquartered
in Frankfurt, Germany.
The current President of the ECB is Mario
Draghi, former governor of the Bank of Italy.
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Mrs. Charu Rastogi, Asst.
Professor
27. the definition and implementation of monetary policy for the euro area;
the conduct of foreign exchange operations;
the holding and management of the official foreign reserves of the euro area
countries (portfolio management).
the promotion of the smooth operation of payment systems.
Banknotes: the ECB has the exclusive right to authorise the issuance of
banknotes within the euro area.
Statistics: in cooperation with the NCBs, the ECB collects statistical
information necessary for fulfilling the tasks, either from national authorities
or directly from economic agents.
Financial stability & supervision: the Eurosystem contributes to the smooth
conduct of policies pursued by the authorities in charge related to the
prudential supervision of credit institutions and the stability of the financial
system.
International and European cooperation: the ECB maintains working relations
with relevant institutions, bodies and forums both within the EU and
internationally in respect of tasks entrusted to the Eurosystem.
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Mrs. Charu Rastogi, Asst.
Professor
31. It is the largest, most representative business
organization in the world.
The International Chamber of Commerce was
founded in 1919 to serve world business by
promoting trade and investment, open
markets for goods and services, and the free
flow of capital.
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Mrs. Charu Rastogi, Asst.
Professor
32. Original guidelines issued in 1972
Revised guidelines were launched at the
World Investment Forum, organized by the
United Nations Conference on Trade and
Development (UNCTAD) in Doha, Qatar in
April 2012.
The aim of the guidelines is to facilitate
cross-border investment for investors and
governments, as well as to harness the vast
potential of cross-border investment for
stimulating balanced global growth.
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Mrs. Charu Rastogi, Asst.
Professor