Central Banks and Monetary Policy
The banking sector of a country consists of a variety of financial institutions supervised by the country’s central bank. These institutions include commercial banks, which offer a wide range of services, such as accepting deposits, making loans and managing customers’ accounts for the general public and many businesses.
However, the country’s central bank takes care about the government’s finance and monetary policy and acts as a banker to other banks and the nation’s government. The critical feature of a central bank — distinguishing it from other banks — is it legal monopoly status, which gives it the privilege to issue bank notes and cash. Many central banks are not government agencies, and so are often politically independent. However, even if a central bank is not legally owned by the government, its privileges are established and protected by law.
Activities and functions of the central bank usually consist in controlling the country’s economy at large and its banking system. It has three monetary policy tools to achieve this goal.
The most effective tool to control the economy is to increase or decrease the amount of commercial banking operations – making loans and accepting deposits. This leads to the increase or decrease of the country’s money supply through the mechanism of reserve requirements. Commercial banks are required to keep about 10% of their funds on reserve with a central bank. When a central bank decides to increase the money supply it can reduce reserve requirements for commercial banks allowing them lend more of their funds to businesses and customers. This leads to the increase of the money supply and stimulates economic growth.
Secondly, central banks can also control the money supply by raising or lowering interest rates. When interest rates are high, the economic growth begins to slow down. When interest rates are low, the economy grows quickly.
Finally, a central bank also acts as an emergency lender to distressed commercial banks and other institutions, and sometimes even a government. It can control the country’s money supply through open market operations, where a central bank buys or sells large amounts of securities, such as government treasury bonds, in the open market. For example, by purchasing government bonds the central bank pumps money into the economy and stimulates its growth.
But if a central bank stimulates the economy too much, it can trigger inflation. Central banks avoid inflation like the plague. Ongoing inflation destroys any benefits of growth by raising prices, and costs, and eating up any profits. Therefore, central banks work hard to be sure to keep interest rates high enough to prevent it.
So, a central bank acts as a banker to the government and to the banking sector, coordinates the country’s monetary policy, supervises the banking system, provides a stabilizing influence on the country’s economy.
Management
Management is the art or practice of managing business, money, products and all the people employed by the company. In other words, management is a set of activities to direct human, financial, physical and information resources to achieve organizational goals in an efficient manner. The chart below shows the four main functions of management:
But the word ‘management’ is also used to denote the people who are in charge of a company. Although large organizations typically have a number of levels of management, the most common view considers three basic levels: top, middle and first-line managers.
Top managers are upper-level executives who guide and control the overall activities of the organization. They are responsible for the organization’s planning and developing its mission. They also determine the firm’s strategy and its major policies. They make up the relatively small group of executives who control the organization. They are president, vice president, chief executive officer, and members of the Board.
Middle managers make up the largest group of managers in most organizations. They implement the policies and plans developed by top managers, develop tactical plans, coordinate and supervise the activities of first-line managers. Titles at this level are division manager, department head, plant manager, and operating manager.
First-line managers coordinate and supervise the activities of operating employees. They solve day-to-day problems. Common titles for first-line manager include office manager, supervisor, foreman.
Operating employees are not managers. They represent the work force of organization.
An organizational structure can also be divided more or less horizontally into areas of management. The most common areas are finance, operations, marketing, human resources, and administration. An organization may include other areas as well- research and development or risk management.