Answer:
Background
The Federal Reserve Bank or he Fed as it is popularly known, was created by an Act of Congress in 1913 to serve as the Central Bank of the United States of America. It is therefore the Principal Bank in the United States and serves as the bank of the US Government by default. As the Central Bank, the Fed is in charge of Financial Institutions in the country especially Banks. They also controls the amount of USD in circulation through different methods such as Open Market Operations, Discount and Reserve ares and requirements and the actual printing of money ( they decide how much money the Treasury Department's Bureau of Engraving and Printing should print).
Responsibilities
The Fed is in charge of Monetary policy which it uses to maintain interest rates and money supply in the United States. As already stated which some additions, the Fed's responsibilities are;
- To act as the US Government's bank
- To regulate and oversee financial institutions
- Influence money supply and interest rates.
Modus Operendi
- Open Market Operations - This is a method by which the Fed controls money supply. Using Open Market Operations (OMO), the Fed sells or purchases Government securities through a number of securities dealers who compete on a price basis. By buying Government securities the Fed puts money into the Economy as payment for the securities and when they sell they reduce money supply.
- Reserve Requirements - This is a percentage of total deposits that banks are to keep with the Fed to protect against Bank failure. This requirement can be increased or decreased to control the amount of money that banks hold and by extension money supply.
- Discount Rate - This is the interest charged on loans to banks from the Fed. Controlling it is also a tool in Monetary Policy.