Global Financial Markets Essay Example | Topics and Well Written Essays - 2750 words

globose Financial Markets - Essay ExampleLow inflation is a positive scenario as it enables a rustic to maintain a stable economy and keep the value of local currency money.For example, if a underlying Bank wants to attain and keep exchange rate stability and stem capital outflow, the bank must(prenominal) implement a high touch on rate policy such(prenominal) as increasing anticipate market rates to a range of 20 to 30% from a regular level of 10% in close cases. A stable foreign exchange rate will prevent a deep contraction of domestic economic activity. The Central Bank can also encourage an involution of bank lending to small and medium enterprises by expanding its credit facility to support local enterprises. By achieving its primordial goals of stablility and efficiency in the monetary and pecuniary frameworks, the Central Bank makes its very important part to the growth of the local economy.The Central Bank sets a base rate at which it transacts with other financial institutions. This interest rate then impacts on an array of interest rates set by mercantile banks and building societies for their clients consisting of both borrowers and lenders. It also affects the price of financial assets including bonds and shares. The policy of decreasing or raising interest rates influences the level of spending in the economy. For instance, lower interest rates makes saving less captivating and borrowing to a greater extent attractive. Lower interest rates can affect the consumers and the firms cash-flow. For example, a steep cancel in interest rates reduces the income from savings and the interest payments due on loans. Borrowers also spend more of any extra money they have. The final effect of lower interest rates is to encourage higher(prenominal) spending in aggregate.Lower interest rates can boost the prices of other assets such as houses. higher(prenominal) house prices permit the home owners to extend their mortgages to finance higher consumptio n. Higher share prices increase the households wealthiness also. In addition, the main macroeconomic objectives of long-term growth and employment are achieved by monetary government through the judicious application of the appropriate monetary policy. Over the years, monetary authorities are cogitate on price stability by setting numerical targets for inflation over limited periods.As a strategic move to set the base rates, the monetary authorities make a series of choices regarding the data used as the basis for short-term and longer-term monetary policy adjustments by giving weight and specific roles to crucial economic variables. This information is applied in setting the base rate for interest rates, the preponderant foreign exchange rate regime, the intermediate money supply targets, the preferred forecasting mechanisms and the dominate indices of the prevailing conditions in the monetary sphere. Individual country assessments on the base rate vary in most respects. The financial variables which exert an important role at the strategic level include important targets such as money, credit and asset prices.The main operating procedures which relate to the tactical level of policy slaying encompass the choice both of instruments and of operating objectives. The central bankers use major policy instruments such as official interest rates, market operations such as repurchase tenders, reserve requirements and specific shoot controls like ceilings on loans and ceilings on bank deposits