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How Are Open Market Operations Related To Others. How Are Open Market
Operations Related to Other Monetary Instruments? Open market ...
... Related Content: • Explanations: • How Income Taxes Work ... silver or gold, and others
by government ... The discount rate • Open market operations The Reserve ...
... Although WTO mandates open markets China is impeded in this area ... Opening operations
in China has been a mutually ... to introduce new products in a foreign market. ...
... like 10¬15% less than open-market price through ... De Beers to mine and market Botswana's
diamonds ... of its international marketing-related operations into Bostwana ...
... and close to 10,000 banks suspended operations. ... in various countries would be closely
related. ... aggressively supplied liquidity through open market purchase of ...
Submitted by oneblessed on June 30, 2008
Category: Business
Words: 4966 | Pages: 20
Views: 40
Popularity Rank: 115,479
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How Are Open Market Operations Related to Other Monetary Instruments?
Open market operations affect the money supply and related financial measures through their impact on the reserve base of the banking system. As a matter of monetary policy tactics in controlling these reserves, open market operations can be conducted in one of two ways: actively, by aiming for a given quantity of reserves and allowing the price of reserves (that is, the interest rate) to fluctuate freely; or passively, by aiming at a particular interest rate, allowing the amount of reserves to fluctuate. Industrial countries, with well-developed and sensitive markets, normally employ a passive approach, although there have been exceptions. A passive approach also appears to be the norm in emerging markets that have reached a certain level of sophistication. There are advantages to a more active approach in developing countries, however. In such countries, the absence of efficient secondary or interbank markets--to transmit the influence of monetary policy--might be one reason for an active approach. Another might be that the active approach allows the central bank to define its policies more clearly, especially when control of inflation is the overriding goal. Such an approach is embodied in a number of programs supported by the International Monetary Fund for particular countries.
If open market operations are to become the principal policy instrument, other monetary instruments obviously need to be given less importance, particularly the central bank's discount window, where the banking system can obtain reserves on its own initiative simply by borrowing from the central bank. Other adjustments may also be needed, depending in part on the particular strategy adopted for conducting day-to-day open market operations.
Discount Window Policy
For open market operations to be effective, limitations need to be placed on the access of banks to borrowing from the central...
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