Monetary operations

Name

Professor

Class

Date

Marketing

Monetary operations

Monetary operation is the exercise by which economists implement monetary policy. On the other hand the mechanism by which the financial authorities in a country manage the circulation of money is what is referred to as monetary policy. Stakeholders widely agree on roles that the economic policy have to play: rapid growth, high employment and stable prices. However, they do not agree that these roles are compatible. Monetary policy can be used to halt inflation but cannot be used to stop recession. The role of monetary operations is to ensure that policies made by the central bank in a country attain their objectives in the financial markets. To meet its operational purposes their target is mainly to obtain a certain interest rate per day and the most successful instruments are those that match the workings of the system in the financial market (Homan 134).

FDI (Foreign Direct Investment) is an individual’s direct investment through his business in a foreign country either by expanding the operations of an already existing business in the foreign country or by purchasing all the shares in a company in the foreign nation. Hot money is an expression common in the financial markets to submit to the streaming of funds from one nation to another so as to gain some short term profits on the differences in interest rates. Production FDI occurs when a company copies the activities it does in its home country at the same production level but in a foreign country (Homan 137).

A capitalist system is one in which the economic system is founded on the personal ownership of the means by which goods are produced. Financial architecture is the wide ranging measures and framework put in place to manage an economic crisis. The Banking system is an important component of the international economy because it accounts for trillions of assets globally. The IMF (International Monetary Fund) is a global financial institution that is affiliated to over 180 countries and works to guarantee international trade, monetary cooperation and financial stability (Homan 139).

The IBRD (International Bank for Reconstruction and Development) one of the five subsidiaries of the World Bank is a global financial institution that provides loans to poor countries. BIS (Bank for international settlements) mainly promote global financial and monetary cooperation and works closely with central banks. However, being a global organization it does not answer to any country (Homan 142).

Hard money is the kind of funding by an organization or government that is continuous rather than an on one occasion funding. On the other hand Soft money is the kind of funding provided by politicians particularly during their campaigns it is done only once (Homan 147).

A foreign exchange risk is a risk that results from an exposure to unexpected changes in the rate of exchange between two currencies. The risk exists because of exchange of currencies between exporters and importers who are subjected to a likelihood of drastic financial costs if they do not properly manage it. For exporters and importers to protect their investments against losses posed by the foreign exchange risk they need to affect various available hedging strategies (Homan 156).

A forward contract is a non consistent contract between two parties to purchase or vend a product on a particular future date on a price settled upon between them prior to the transaction. On the other hand, a forward option starts at a specified date in the future and expires on a further specified future date. However, its premium is paid well in advance and just before it expires. A counter party risk is a risk that affects each part of a contract that the counterparty may not meet its requirement. On the other hand market risks are the probabilities of investors to get losses because of dynamics that impact on the general performance of financial markets (Homan 159).

Works Cited

Homan, P. T. and Fritz Machlup, ed., Financing American Prosperity. New York (2010): (134-159).Print.