The Federal Reserve also know as Fed is very influential organization based in the United States. The main aim of creating this organization was to monitor and maintain the supply of United States dollar within the country. Federal Reserve was created by Congress in 1913 through a legislation. The Fed consists of Washington D.C.-based Board of Governors which includes 12 large regional banks, many other smaller affiliated institutions.
The Federal Reserve has devised and created many techniques to stabilize the currency within the US economy. The most important method is to increase and decrease the amount of money supply in the United States of America. The Federal Reserve can easily sell or purchase government securities to its main traders and that easily brings additional Federal Reserve Notes into the money circulation of the economy. The Federal Reserve also operates with the U.S. Mint for the printing of additional paper money, or to destroy unneeded currency.
Federal Reserve has a very influential power of affecting the short term interest rate of the economy. This is usually done by federal reserve through altering the default rate by which it loans are given to the fellow banks. Since the Fed’s default rate is one of the major factors for calculating the nationwide primary interest rate. Moreover, the actions taken by Federal reserve can indirectly decrease or increase the interest – accruing yield assets. This is very important for determination of investors behaviors in the given Forex market. Federal Reserve also sets the discount rate which is the rate at which Fed lends money to depository . This rate is mostly set more than the ”nominal rate” which is the official rate that the depository institutions lend amounts to one another to fulfill federal reserve requirements. The nominal rate is what is commonly known as the Federal Funds Rate. It is set through open market operations of the Federal Reserve.
Money supply is the main factor used to determine the overall trade balance among various currency markets. Therefore, forex traders who are busy working with US currency have to keep a close eye on the actions of the Federal Reserve.Janet Yellen is the present Chairman of the Federal Reserve System.
Web Address :The Federal Reserve Official Website