Gabrielle Olivier D.

Enverga
C061- Financial Markets

1. What is the role of Central Bank in the financial system?

- A central bank is a financial institution that has exclusive power
over the creation and distribution of money and credit for a country
or set of countries. The central bank is normally in charge of
formulating monetary policy and regulating member banks in
modern economies. Central banks are essentially non-market
oriented, if not anti-competitive. Many central banks are not
government entities, and as a result, they are sometimes regarded
as politically autonomous. Regardless of whether or not a central
bank is technically owned by the government, its rights are
established and guaranteed by law.

2. Site examples that contributed to the collapse/crisis in the financial market

as well as the risks involved.
- Deregulation - is the reduction or elimination of government power
in a certain industry, which is usually done to increase competition.
Market circumstances have altered as a result of the battle between
proponents of regulation and proponents of no government
interference over the years. Finance has always been one of the
most closely examined sectors in the United States.

3. Discuss monetary policy and how it affects the financial system.

- Monetary policy is the macroeconomic policy laid down by the
central bank. It is a demand-side economic policy in which the
government of a country manages the money supply and interest
rate in order to achieve macroeconomic goals such as inflation,
consumption, growth, and liquidity. In general, monetary policy has
an impact on the financial system through lowering or raising
interest rates. Financial institutions can obtain funds at cheap
interest rates when interest rates fall. This allows them to lower the
interest rates on loans to businesses and households.

4. Explain how money is created. What are the functions of money and
explain each.
- Money creation, often known as money issuance, is the process of
increasing a country's or an economic or monetary region's money
supply. The majority of money supply in most modern economies is
in the form of bank deposits. Central banks measure monetary
aggregates (also known as broad money), which include cash and
bank deposits, to keep track of the amount of money in the
 economy. When the number of monetary aggregates rises, money
is created.
- money primarily functions as a medium of exchange.

5. Discuss the supply and demand curve of money.

- The money demand curve depicts the amount of money demanded
at a particular interest rate. The demand curve for money is
downward sloping, which indicates that if interest rates on bonds
and other alternative assets rise, people desire to hold less of their
wealth in the form of money. The central bank is in charge of the
money supply and interacts with other financial organizations. The
money market includes this interaction, which we may see using a
supply curve.
- The supply curve for money illustrates the quantity of money
supplied at a given interest rate, and here's what that looks like.
Notice that unlike a typical supply curve in the product market, the
supply curve for money is vertical, because it does not depend on
interest rates. It depends entirely on decisions made by the central
bank.