Money Market Analysis: Instruments, Economic Factors, and Supply

This assignment solution explores various aspects of the money market. It begins by examining different types of cards, including charge cards, credit cards, and debit cards, discussing their suitability based on individual lifestyles and financial habits. The assignment then delves into the Federal Reserve's role, explaining how open market operations and the discount rate are used to influence the money supply. It also addresses the impact of cash shortages, caused by factors like racketeering and usury, on the money supply. Finally, the assignment analyzes the factors that affect spending in an economy, such as taxation, interest rates, and consumer confidence, highlighting the concept of marginal propensity to consume and save.

Running Head: Money Market
Money market

Money Market 1
Answer 1
As per the concern regarding spending, keeping and acquiring an important separation from
charges, every part of portion card has unforgettable impediments and preferences. Generally,
there are following important sorts of card:
 The first one is the cards that permit individuals get money and pay it as per their own
desire. It mainly includes Charge cards, Visas and Store cards.
 The second one is the cards that give individuals an opportunity to blaze with the help of
money they starting now have or inside an agreed office of overdraft. It mainly includes
prepaid cards and checks cards.
Suitability of a card depends on the lifestyle of an individual; whether one is sure about payment
of their card bills, or whether they feel uncertain about the payment of card bills. A charge card
is considered as a method to deal with purchases of things now and pay the amount later. A man
generally keeps running up a bill and make payment of it after some time as per their suitability.
The direct Debit card enables the people to pay everything on a month to month basis, if she or
he is not on top of their bank balance, they will be able to overdrawn amount when the portion
turns out. Another form of a card is MasterCard which give high security to individuals against
blackmail. MasterCard gives an extra individual security in case one has a problem with the
organizations and stock they have purchased that cost amongst £200 and £ 35,000 (Duygan‐
Bump, 2013). There is not getting requirement if an individual goes for an overdraft. Check
cards also have some distortion protection against unorganized businesses, but not so much as
provided in Visas.

Money Market 2
Answer 2
The operation of an open business part occurs when the Fed offers or purchases different
available securities in the open business division. Operations of open business influence the
financial base by altering the different store measures during tackling with a record system. If the
Fed requires lessening the different money measure; it provides various securities of government
in the open business part. All such arrangement minimizes banks or bank stores, or their
potential customers, make payment for the securities provided by the organization (Fricke,
2015). During the time of bank stores lessen, they need to acquire a large number of credits,
which ultimately minimize the measure of stores, and the measure of money reduces. It can be
said that Fed is unable to lead an open business area function and extension changes efficiently.
This can be successful done by changing the financial base of money measure. Thus, it is very
critical to utilize a segment of open operation to alter the overall measure of money while
maintaining the cash related base unfaltering.
Answer 3
The Federal Reserve significantly utilizes three main instruments to influence the overall money
supply in the existing economy. Operations of open market are considered the very important of
the three, and contain the offering and acquiring of U.S treasury securities to “softly” reduce or
increasing the trade supply out little expansions after some time.
The markdown rate is generally considered the financing cost which is charged by the banks
when they get from the Federal Reserve. Apart of it, the discount rate can significantly change by
the Federal Reserve either to dampen or invigorate obtaining from a different budgetary
association (Abbassi, 2012). Generally, alteration in the refund rate has a more significant

Money Market 3
influence on the level of money supply, and mostly utilized to deliver a message to the financial
gathering regarding the plan of Federal Reserves to reduction or augmentation of the money
supply.
Answer 4
It can be said that shortage of cash significantly influences the money supply of a country. Cash
shortage occurs due to the three important problems: racketeering, usury and flattening.
Generally, Emptying is considered self-evident: if the economy of a particular country is
working with a close limit of max and the supply of cash starts waning (Carpenter, 2016). At this
stage, the market will require focusing at a lower level of value. This will bring discouragement
and subsidence in the pessimistic scenario of a country.
Usury is considered as a steady deplete on the supply of cash in a particular country.
Management of banks spends a huge amount of the enthusiasm into the economy. They
efficiently relend the different parts to bring significant changes in obligations and various
related premium expenses. All such functions of banks, declining their liquidity. The remaining
portion is redirected towards the money market economy. It is generally considered as the two-
circle economy which is significantly utilized for monetary con amusements such as conjecturing
cost related items, increase the level of trading in share system, subsidiary exchange and FOREX
(Berkowitz, 2015). All these are considered the famous exploitative apparatus.
There are various factors which influence the level of spending in an economy. Some of them are
following:
 Direct and Indirect Taxation
 Rate of Interest

Money Market 4
 Amount of Real income
 Customer Confidence
 Supply of Credit
 Economic and Monetary Demographics
 Wealth of Households
 Distribution of income
The most important factor is the amount at which traders develop their spending as an increment
in their income. It is recognized as the negligible affinity to expand. It may happen that
somebody receives additional compensation of £1500 in a particular year and they burn through
£ 1000, in such a manner the peripheral inclination to expand is £1000/£1500 = 0.67. The
remaining part of peripheral inclination to spare is 0.33 (Kacperczyk, 2013).
The direct way to recollect is that the peripheral inclination to buyer summed to the minimal
penchant to raise the spare up to 1. Generally, it is considered that individuals who have fewer
salaries have a high tendency to spend. All this matters when the administration reports changes
the level of welfare advantages and tax collection.

Money Market 5
References
Duygan‐Bump, B., Parkinson, P., Rosengren, E., Suarez, G. A., & Willen, P. (2013). How
Effective Were the Federal Reserve Emergency Liquidity Facilities? Evidence from the Asset‐
Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. The Journal of
Finance, 68(2), 715-737.
Fricke, D., & Lux, T. (2015). Core–periphery structure in the overnight money market: evidence
from the e-mid trading platform. Computational Economics, 45(3), 359-395.
Abbassi, P., & Linzert, T. (2012). The effectiveness of monetary policy in steering money
market rates during the financial crisis. Journal of Macroeconomics, 34(4), 945-954.
Carpenter, S. B., Demiralp, S., & Senyuz, Z. (2016). Volatility in the federal funds market and
money market spreads during the financial crisis. Journal of Financial Stability.
Berkowitz, J. (2015). Money Market Mutual Funds: Stress Testing and the New Regulatory
Requirements.
Kacperczyk, M., & Schnabl, P. (2013). How safe are money market funds?. The Quarterly
Journal of Economics, qjt010.