Answer to Question #205629 in Finance for Lewis Phiri

Question

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]

Answer 1

(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.