ECN 101 Lecture Notes - Lecture 9: Foreign Exchange Market, Reserve Requirement, Money Market
Document Summary
Reserve bank of australia (rba) the rba has two major roles: To maintain the financial integrity and stability of the australian financial system. Monetary policy is action taken by the rba to affect interest rates in order to target inflation. Full employment of the labour force stability of the australian currency. Economic prosperity and welfare for the people of australia. Open market operations are purchases and sales of government securities made by the central bank in order to change high-powered money. An open market purchase (sale) of bonds would increase (decrease) the money supply, Required reserves are the reserves that central bank regulations require depository institutions to hold. An increase (decrease) in the required reserve ratio would tend to decrease (increase) the money supply. The rba sometimes intervenes in the foreign exchange market to affect exchange rates. The buying and selling of foreign exchange affects the money base. The quantity equation was a model developed by classical economists: