The Central Banks

One major factor that surely moves the market of currencies is the interest rates. Interest rate is the major cause why there are foreign investors who transfers from one country to another hoping for a safe and higher yield. Over the past years the growth of the interest rates and its spreads among the countries continues to be the target of most of the seasoned and expert investors. Most of the traders specifically the seasoned ones and the experts forget that value of the interest rate are not really that important. The important realization is to anticipate the future direction of the rates. Familiarization with how the central banks work will give any trader the help for prediction of its next direction and the next movement of a currency pair. This article will discuss the structure of two major central banks.

U.S. Federal Reserve System (The Fed) This is perhaps the central bank that greatly influences the world. The US dollar makes up ninety percent of the entire transactions for its currencies. The Federal Reserve System has an effect that gives value on currencies of many nations. The FOMC or the Federal Open Market Committee is the group that makes decisions for its interest rates. This is composed of the Board of Federal Reserve, consisting of governors which are seven in number and five presidents for the districts of the reserve banks which are twelve in number.

The Federal Reserve System has the mandate for a long period for stability of prices and to sustain its growth. The officials meet each year for eight times.

European Central Bank (ECB) This central bank was founded in 1999. The European Central Bank's governing Council is the main group that makes the decision for any alterations to its policies regarding money. The governing council is composed of six members who makes up the board of executives of the European Central Bank. Another group is made up of the governors which come from the entire national central banks of the twelve European nations. As one of the popular central banks, the European Central Bank cannot favor surprises. When there is a plan for a change in the rates, it constantly gives the market sufficient notice which is made with the help of the press.

The Mandate of the European Central Bank is to make the prices stable and sustain its growth. The European Central Bank aims to sustain the yearly growth under two percent for the prices for the consumers. This central bank is also dependent on its exports which is the reason why it prevents excessive strength on the currencies which can pose a certain risk to the exports. The officials meet every two weeks. The decisions on its policies are often made when a conference for the press happens at the same time.

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