Answer to Question #205629 in Finance for Lewis Phiri

Question #205629

Question three

A. Explain the credit channel for contractional monetary policy. Explain how a loose monetary policy affects the economy through this channel. [7 marks]

B.Discuss the criteria for a good international monetary system. [4 marks]

C.Explain the FOUR (4) major instruments traded in the money markets in Zambia.[4 marks]

D. Explain FOUR (4) objectives of monetary policy in Zambia. [4 marks]

E. Explain THREE (3) instruments of monetary policy used in Zambia. [6marks]

[Total=25 marks]


1
Expert's answer
2021-06-13T17:54:40-0400

(a)Credit channel states that monetary policy affects the level of economic activity by changing short term interest rate and altering disposal and terms of bank loans. A rise in federal funds rate tends to increase bank lending rates and reduce supply of credit.


(b)A good international monetary system should provide

  • sufficient liquidity to the world economy.
  • smooth adjustments to balance of payment disequilibrium as it arises.
  • safeguard against the crisis of confidence in the system.


(c)Major instruments traded in the money markets in Zambia

  • Repurchase Agreements.
  • Commercial Paper.
  • Banker's Acceptance.
  • Treasury Bills


(d)Objectives of monetary policy in Zambia.

  • Price stability
  • management of inflation
  • management of unemployment
  • maintenance of currency exchange rates


(e) Instruments of monetary policy used in Zambia.

  • Treasury Bills.
  • Guidelines Securities.
  • Circulars Securities.




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