Money,banking and the federal reserve system Essay

Money, depositing and the federal reserve system - Essay ExampleIn order to ensure a balance of the bank reserves and to control the monetary base, the national Reserve was established. For efficient use of funds in the linked States, the Banks and the national Reserve work together. Money is the most widely used liquid asset in the world today. Cash is the liquid form of funds that is applicable and usable in many of the humble and mass medium business ventures. However, there are other forms of gold acceptable in many places. These accommodate travelers checks, and checkable bank deposits. Money has the capability of generating gains from trading activities since its nature allows indirect mass meeting. It also provides a uniform way of transacting given that every product or service can be transfer with money. It contradicts the barter system of trade (Krugman 412). Money plays three main functions in the United States economy. Firstly, it the sole medium of exchange a cross the country, it is possible to obtain any goods and services in exchange of money. This medium of exchange lacks the capability to be consumed hence it has to be applied in obtaining consumable goods and pay fro services. Hard economic times have a bun in the oven called for use of different monetary forms. This has been evident in some Latin American countries that have resulted into the use of the American dollar, a situation also seen in Eastern Europe where they have used Euros. Secondly, it is used as a store of cheer, meaning money has the ability to purchase business office everyplace a given period. Other assets complement money as a store of honour but its uniqueness is that its value appreciates in most cases. Lastly, money is a unit of account. In accounting, money is widely accepted as the medium of setting prices and calculating the value of other assets 413-414. The concept of money has continued to change with time. In historical times, silver and gold wer e considered as the medium of exchange, this was facilitated by their of import nature in devising of making of ornaments and jewellery. Around independence time in 1776, paper money was getting used to complement the gold and the silver coins. The transition saw the introduction of commodity-backed money that whose value was dependent on the promise that it could be possible to turn it into value on demand. (Krugman 414).To further stir the monetary form, the United States Dollar was adopted as a generally acceptable mode of transacting in exchange of goods and services. This introduced the so-called fiat money that derives its value from the official status it adopts. This type of money has advantages over the former types in that it does not use other resources apart from the material used in its making and secondly, its supply can be regulated to take care of specific economic needs. However, the challenge rest in production of fake currency (Krugman 415). There are two type s of monetary aggregates, denoted by the Federal Reserve as M1 and M2. M1 entails the cash, travellers checks and checkable bank deposits. Other near-moneys are inclusive in M2. In the United States, year 2011 September, M1 was equivalent to $2,136.9 billions while M2 was $9,603.6 billions of dollars (Krugman 416). Near-moneys are accompanied by interests that the cash dos not, this is the fence why they pay higher interests than checkable bank deposits. Banks plays a critical role in the money exertion in the United States and all over the world. It is evident that banks play a role in linking the Federal Reser