Lesson 6.01 The Federal Reserve System

Vocabulary

Board of Governors

A group of seven members, operating in Washington, DC, appointed by the President and confirmed by the Senate to control the Federal Reserve System.

 

Central Bank

The main monetary authority of a country.

 

The Federal Reserve System

Also knowns as "The Fed", this is the central bank for the United States.

 

Check Clearing

One of the functions of the Federal Reserve. The system of moving the funds of a person writing a check to the person receiving the check.

 

Depository Institution

Any institution that accepts deposits and loans money to the public, which includes commercial banks, savings and loan associations, and credit unions.

 

Discount Rate

The rate at which an eligible depository institution may borrow money from the Federal Reserve Bank.

 

Excess Reserves

The amount of funds held by an institution in excess of required reserves.

 

Federal Funds Rate

The interest rate that depository institutions charge one another for an overnight loan.

 

Federal Open Market Committee (FOMC)

The twelve member committee of the Federal Reserve that meets eight times a year to set the monetary policy for the nation.

 

Federal Reserve Act

The act passed in 1913 that created the Federal Reserve System.

 

Federal Reserve Bank

The system of 12 districts throughout the United States responsible for payment services, supervising and regulating member banks, distributing the nation’s currency and serving as the fiscal agent for the federal government.

 

Liquidity

The measure of how quickly an asset can be converted into cash without loss of value.

 

M1, M2, M3

Differing measures of parts of the money supply, that vary based on their decreasing liquidity.

 

Monetary Policy

The Federal Reserve's actions that influence the money supply, the cost of money and credit.

 

Nominal Interest Rate

The current interest rate, established by the Federal Reserve.

 

Open Market Operations

The purchase or sale of US Treasury securities that either increase or decrease the supply of money balances available to depository institutions.

 

Real Interest Rate

Interest rate adjusted for inflation.

 

Required Reserve Ratio

The percentage of liabilities a depository institution must set aside from customer deposits

 

Required Reserves

Funds that depository institutions keep as vault cash or at the Federal Reserve.

 

US Treasury Securities

Bills, Notes or Bonds issued by the US Department of the Treasury in amounts of at least $1,000.