by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is a Bank Run? Back in the nineteenth century and during the first few decades of the twentieth century (around and during the Great Depression), putting your money in a bank could be nerve-wracking. Imagine that the net worth of your bank became negative, so...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Bank Supervision? Several government agencies monitor banks’ balance sheets to make sure they have positive net worth and are not taking too high a level of risk. Within the U.S. Department of the Treasury, the Office of the Comptroller of the Currency...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How is the Federal Reserve Bank Organized? Unlike most central banks, the Federal Reserve is semi-decentralized, mixing government appointees with representation from private-sector banks. At the national level, it is run by a Board of Governors, consisting of seven...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Banking System? Money, loans, and banks are all interconnected. Money is deposited in bank accounts, which is then loaned to businesses, individuals, and other banks. When the interlocking system of money, loans, and banks works well, economic transactions...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is a Bank Balance Sheet? A balance sheet is an accounting tool that lists assets and liabilities. An asset is something of value that you own and you can use to produce something. For example, you can use the cash you own to pay your tuition. If you own a home,...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is an Exchange Rate Policy? Exchange rate policies come in a range of different forms. Let the foreign exchange market determine the exchange rate; let the market set the value of the exchange rate most of the time, but have the central bank sometimes intervene...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is a Merged Currency? An approach to exchange rate policy is for a nation to choose a common currency shared with one or more nations is also called a merged currency. A merged currency approach eliminates foreign exchange risk altogether. Just as no one worries...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What Causes Exchange Rate Fluctuations? For firms that depend on export sales, or firms that rely on imported inputs to production, or even purely domestic firms that compete with firms tied into international trade—which in many countries adds up to half or more of a...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How Do Exchange Rates Affect Aggregate Demand and Aggregate Supply? Foreign trade in goods and services typically involves incurring the costs of production in one currency while receiving revenues from sales in another currency. As a result, movements in exchange...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
Why do Central Banks Care About Exchange Rates? A central bank will be concerned about the exchange rate for multiple reasons: (1) Movements in the exchange rate will affect the quantity of aggregate demand in an economy; (2) frequent substantial fluctuations in the...
