For most of us, dealing with money has been altered by technology. Most of us use money out of ATM’s or we pay bills with online banking just as easily as we change channels on a television. Obviously printing presses and paper cutters create our physical money, but how is the idea of money really created? Do banks and laws really make the idea of money? This essay evaluates the efforts of the Federal Reserve System, often called the Fed, in terms of regulating the money creation of financial institutions?
Congress passed the Federal Reserve Act near Christmas in 1913 and that established the Federal Reserve Banks and also created a more elastic currency and established new legal controls over the commercial banking industry. The Federal Reserve is the central bank of the United States and is made up of 12 regional Federal Reserve banks that are overseen by a seven-member Board of Governors in Washington, D.C. who are appointed by the President. The Federal Reserve Act cannot be considered a perfect piece of legislation because it is still be tweaked from time to time.
For example, the International Banking Act of 1978, called the Humphrey-Hawkins Act, attempted to create new objectives for the Federal Reserve like spurring economic growth in a more modern economy that could expand, add stability to the dollar and control long-term interest rates. “The primary responsibility of the Board members is the formulation of monetary policy. The seven Board members constitute a majority of the 12-member Federal Open Market Committee (FOMC), the group that makes the key decisions affecting the cost and availability of money and credit in the economy.” (Fed) As demonstrated by our current economic downturn, trends of cash shortages in the banking, financial investment and corporate American are the result of a system that is out of control. “The Board sets reserve requirements and shares the responsibility with the Reserve Banks for discount rate policy. These two functions plus open market operations constitute the monetary policy tools of the Federal Reserve System. (FED) Usually, the Fed only had to raise or lower interest rates to kick start the economy or to fight off inflation. Today, the world economic crisis is changing their overall function and it is possible that our current fiscal mismanagement will create many new problems creating and regulating money in the future for the Federal Reserve Bank.
A little insight into what money really is can go a long way towards discovering how banks and other financial institutions create money. Banking is a business that deals mainly with money and other instruments of credit. Technically, anything can function as money: dollars, pounds, drachmas, pennies, checks, sand, doors or even rocks. Because of this, money is better defined by its purpose. One of the main purposes is to simplify the process of buying and selling things. An option to money is a pure barter system where parties exchange things directly. Swaps are usually not even exchanges but the idea is swapping a chicken, cow and goat for a house. Money keeps us from having to carry chickens, cows, goats and yes, houses with us on vacations in Rio. The idea of money is great if you are a lead weight salesman. Banks later became the middlemen of the new exchange process that replaced bartering. To make income for themselves, banks created new ways to make profits which then created a credit process which allows banks and other institutions to make loans for extended periods of time in exchange for payments in the form of interest.
In conclusion, the real way that the Fed regulates the money creation of financial institutions is by its daily function. The Federal Reserve can be considered to be either a public or private institution because on the one hand they are raising money for our government by selling bonds and other securities to investors while on the other hand it helps supply private commercial banks with cash reserves that the banks are legally obligated to hold. Money creation is also done through setting interest rates that tell banks at what cost they should lend to other banks which is a different interest rate for borrowing money from the Fed directly.
Technology has become king in the world of shopping and marketing through the use of E-Marketing techniques and principles. Soon we may not need brick and mortar stores because whatever we want we can go online and have it shipped to us in a couple of days. Who goes to a store to by CD’s or any other kind of music these days? Consider the complaints of music business leaders who are all upset because even after the famous KaZaA battles, people can still get free music on the internet. Have you tried finding a good travel agent lately? Priceline.com will beat any offer they make. Barnes & Noble’s in-store library is too small, well, might as well go to Amazon.com. And shopping has also gone global because when those new Italian glasses go on sale at Ray Ban store outlets, well, they were cheaper if purchased directly from the Italian manufacture online. This essay will evaluate the impact of information technology on a business I know, the ever popular retail store in the mall.
The future of retail stores has been forever altered by the likes of information technology. Businesses now use new e-marketing techniques to make themselves even better at what they do, market and sell. Cisco Systems, a major player in the technology spectrum says that “e-marketing is a general term for a wide array of activities – advertising, customer communications, branding and relationship-building efforts, loyalty and retention programs, and more – all conducted over the Internet. Much more than creating a Web site, e-marketing focuses more on communicating online, using a customer-directed dialogue with your company to find new prospects, increasing loyalty and making it easier for your customers to do business with you. In short, we define e-marketing as all the things your business does online to find, attract, win, and keep customers.” (Cisco Systems)
Whatever definitions we come up with when talking about e-marketing, the underlying principals of marketing still apply. There are some slight differences between marketing and e-marketing. One distinction is that old marketing techniques depend on traditional media outlets and sources while e-marketing incorporates all of the original techniques but also has at its disposal all of the newer mediums like the Internet’s World Wide Web, email and cell phones. A second distinction is the cost. The new sources used by e-marketing are much less costly which makes it easy to embrace.
The has some very tangible advantages. TIVO is like thing and the company prides itself on how well they have incorporated the principles of e- marketing into their boxes. When TIVO sends a commercial for example, they know exactly which house saw the ad without spending any extra money and they already have all of the homes demographic information based on where the TIVO box is physically located. They get instant two way feedback from their ads. This idea from e-marketing promotes two way conversations between the business and the customer. This then provides very accurate degree of data accuracy that is measurable as opposed to a newspaper ad that may or may not ever provide feedback for the business. Email ads are also response driven so the business that sends the blind email knows for sure that any customer who responds wants to be contacted by the business redefining the cold call.
In conclusion, this essay evaluated the impact of technology on retail stores and shopping in general and the effect of e-marketing. What does this mean to the average person: Yahoo and Googol are not yet capable but are each working towards being able to locate and store the MAC and IP address of every internet user even if they do not use the search engines. This would stop the anonymity of the internet but it would increase the capabilities of the typical company using e-marketing techniques. After 911 and the Patriot Act, we gave up quite a few rights for the sake of fighting terrorism. What rights will we be giving up when we buy the next Harry Potter at Amazon?
A favorite subject of mine is how various pricing objectives that govern pricing decisions could affect a company’s goals? Right away I think of the Capital Asset Pricing Model or CAPM. CAPM is the process of understanding the time value of money and how a company can use this information to decide if they should put their money into Research and Development, offer new stock to investors or if they should retire a long-term debt obligation sooner rather than later. The Capital Asset Pricing Model also takes into consideration the underlying risk that would be associated with any investment and the investment’s potential rate of return. The Capital Asset Pricing Model allows business leaders to compare factors to another source like bond performance to the ‘s performance. Businesses attempt to reduce their exposure to risk and this pricing model is the perfect tool that helps avoid risk. The formula is pretty simple but the answers it provides are often priceless.
Ks = Krf + B x (Km — Krf) where
Ks = The Rate of Return
Krf = The Risk Free Rate
B = Beta
Km = The expected return on the overall stock market
If we were to look at the Ford Motor Company for example. Yahoo finance provides all of the necessary figures for this type of calculation for free every day. So, we would assume a risk free rate of five percent and an overall stock market return rate of ten percent with a Beta of 1.279.
Ks = Krf + B x (Km — Krf)
11.40% = 5% + 1.279 x (10% – 5%)
This CAPM result implies that if a business was to invest in Ford’s stock, the return on investment would have to be more than 11.4% for it to be a good investment. If the Ford stock produced a growth near 13.76% then an investment in the Ford Motor Company for $1,000 over three years would provide a rate of return of:
First Year Return = $1,000 x (0.138 + 1) = $1,138
Second Year Return = $1,212 x (0.138 + 1) = $1,295.044
Third Year Return = $1,468.944 x (0.138 + 1) = $1,473.760072
The company’s potential growth rate of return utilizing CAPM is easy to help the decision making process. If we demonstrated the intrinsic value of Ford, the business could also get forecasts for either optimistic or pessimistic market conditions.
In this case the CAPM principle was applied to a stock, but it could be applied to any business venture such as using truck over rail or ship over plane. Defining how various pricing objectives that govern pricing decisions could affect a company’s goals is a subject that has many implications. In this case, the pricing would be how a company best uses its financing to make sound business decisions. Where a company puts its money and how long that money will be tied up affect every other aspect of the business.
Cisco Systems. (2009).” E-marketing.” Retrieved on November 23, 2009, from http://www.cisco.com/.
FED. (2009). “Structure: Responsibilities.” Retrieved on November 23, 2009, from http://www.federalreserve.gov/pubs/frseries/frseri.htm
Mishkin, Frederic S.. (2002). “The Economics of Money, Banking, and Financial Markets.” 6th ed.. New York: Addison-Wesley Publishing.