Macroeconomics

‭12‬ ‭Federal‬ ‭Reserve‬ ‭Districts:‬ ‭The‬ ‭United‬ ‭States‬ ‭is‬ ‭divided‬ ‭into‬ ‭12‬ ‭districts,‬ ‭each‬ ‭with‬ ‭its‬ ‭Federal‬ ‭Reserve Bank. These banks are located in major cities across the country.‬ ‭Board‬‭of‬‭Governors:‬ ‭The‬‭central‬‭authority‬‭of‬‭the‬‭Federal‬‭Reserve‬‭System‬‭is‬‭the‬‭Board‬‭of‬‭Governors.‬‭It‬ ‭consists‬ ‭of‬ ‭seven‬ ‭members,‬ ‭including‬ ‭the‬ ‭Chair‬ ‭and‬ ‭Vice‬ ‭Chair.‬ ‭These‬ ‭members‬‭are‬‭appointed‬‭by‬‭the‬ ‭President of the United States and confrmed by the Senate.‬ ‭Federal‬ ‭Open‬ ‭Market‬‭Committee‬‭(FOMC):‬ ‭The‬‭FOMC‬‭is‬‭a‬‭key‬‭decision-making‬‭body‬‭within‬‭the‬‭Fed.‬‭It‬ ‭consists‬ ‭of‬ ‭12‬ ‭individuals,‬ ‭including‬ ‭the‬ ‭members‬ ‭of‬ ‭the‬ ‭Board‬ ‭of‬ ‭Governors‬ ‭and‬ ‭a‬ ‭rotating‬ ‭group‬ ‭of‬ ‭regional‬‭Federal‬‭Reserve‬‭Bank‬‭Presidents.‬‭The‬‭FOMC‬‭meets‬‭regularly‬‭to‬‭direct‬‭open‬‭market‬‭operations‬ ‭(OMOs).‬‭Open‬‭market‬‭operations‬‭involve‬‭the‬‭buying‬‭or‬‭selling‬‭of‬‭government‬‭securities,‬‭typically‬‭bonds.‬ ‭These transactions are used to influence the money supply and interest rates in the economy.‬ ‭Commercial Banks‬ ‭Commercial‬‭banks‬ ‭,‬‭also‬‭known‬‭as‬‭banks,‬‭high‬‭street‬‭banks,‬‭retail‬‭banks,‬‭and‬‭depository‬‭institutions,‬‭are‬ ‭privately-owned‬‭fnancial‬‭institutions‬‭that‬‭accept‬‭deposits‬‭and‬‭make‬‭loans.‬‭They‬‭can‬‭operate‬‭nationally‬ ‭or internationally and have the following functions:‬ ‭Hold‬‭Customers’‬‭Deposits:‬ ‭Commercial‬‭banks’‬‭customers‬‭consist‬‭of‬ ‭individuals‬‭and‬‭businesses‬ ‭.‬‭They‬ ‭provide them with deposit accounts such as demand deposits (current accounts) and savings accounts.‬

‭Facilitate‬ ‭Money‬ ‭Transactions:‬ ‭Commercial‬ ‭banks‬ ‭provide‬ ‭their‬‭customers‬‭with‬‭several‬‭fnancial‬‭services‬‭that‬‭facilitate‬ ‭their payments such as debit and credit cards.‬ ‭Act‬ ‭as‬ ‭a‬‭Financial‬‭Agent‬‭for‬‭their‬‭Customers:‬ ‭Commercial‬ ‭banks‬‭allow‬‭customers‬‭to‬‭write‬‭checks‬‭and‬‭collect‬‭funds‬‭that‬ ‭are‬‭payable‬‭to‬‭them‬‭from‬‭other‬‭banks‬‭or‬‭fnancial‬‭institutions‬ ‭(such as a check issued by another bank).‬ ‭Provide‬ ‭Loans:‬ ‭Commercial‬ ‭banks‬ ‭lend‬ ‭out‬ ‭money‬ ‭to‬ ‭individuals and businesses in return for interest.‬

‭In‬ ‭general,‬ ‭commercial‬ ‭banks‬ ‭make‬ ‭profts‬ ‭by‬ ‭charging‬ ‭an‬ ‭interest‬ ‭on‬ ‭loans‬ ‭that‬ ‭is‬ ‭higher‬ ‭than‬ ‭the‬ ‭interest they pay for savings accounts and other costs.‬

‭Study Tip‬ ‭There‬‭are‬‭several‬‭other‬‭types‬‭of‬‭fnancial‬‭institutions,‬‭such‬‭as‬‭investment‬‭banks‬‭and‬‭thrift‬‭institutions.‬ ‭Investment‬ ‭banks‬ ‭specialize‬ ‭in‬ ‭capital‬ ‭market‬ ‭activities,‬ ‭including‬ ‭underwriting‬ ‭securities‬ ‭and‬ ‭advising‬ ‭on‬ ‭mergers‬ ‭and‬ ‭acquisitions.‬ ‭Thrift‬ ‭institutions‬ ‭,‬ ‭on‬ ‭the‬ ‭other‬ ‭hand,‬ ‭are‬ ‭depository‬ ‭institutions‬‭that‬‭are‬‭relatively‬‭smaller‬‭than‬‭commercial‬‭banks‬‭as‬‭they‬‭cater‬‭to‬‭the‬‭local‬‭community‬‭of‬ ‭the area in which they operate.‬

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