To increase the constancy of Financial Institutions and Markets Government intervenes in the interest rates and money supply in the Money Markets. Government has several ways to control income and interest rates which can be divided into two broad groups such as,
The government to adjust the exchange rate intervenes with the foreign exchange markets; there may be a result on the financial base and the supply of money. When the currency is falling, foreign currencies should be sold and the currency should be bought to steady its price. The use of deposits of the national currency to do this suggest that the prepared deposits of the banking sector must be reduced, causing the financial base to fall, affecting the supply of money. Equally by selling the national currency to decrease its rate, the monetary base will increase. Securities may be sold on the open market in an effort to dampen the effects of inflows of the national currency, but this would imply a raise in interest rates and cause the currency to rise further still. A number of institutions can affect the supply of money but the greatest impact on the money supply is had by the Reserve bank and the commercial banks.
See Also: All You Need To Know About Money Market
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See Also: Functions Of Money Market
See Also: Features Of Indian Money Market
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