Introduction A major part of the Federal Reserve System is the Federal Reserve Bank, the United States central

banking system. Federal Reserve System was established on 23rd December 1913 under the Federal Reserve act. There are12 federal banks operating in 12 different states of United States of America under the supervision of board of directors. They are responsible in the execution of the monetary policies and regulation of the commercial banks within their districts. This research unfolds the main roles and functions that are been performed by the federal reserve bank of United States of America and the methods, they uses for the management of the currency throughout the country. Functions of Federal Reserve Bank As the central bank of America, Federal Reserve performs numerous roles that have the impact throughout the economy within the country. Some of the functions of the Federal Reserve Bank are as follows: Monetary policy: The purpose of the economic policy is to protect the PP of the US dollar and create the favorable environment for the sustainable economic growth. The Federal Reserve contributes to these purposes through the monetary policy actions that have the impact on the availability of the money and credit. The Federal Reserve adjusts the monetary policy according to the economic conditions, and the decisions about the policy are based on the current economic and financial information. Supervision of banks:

All the commercial banks operate accordance to the sound banking principles; the Federal Reserve governed them by variety of regulations intended to ensure that they serve their depositors and communities. The Federal Reserve and other state agencies contribute towards the making of the regulations and ensure that all commercial banks agree with these regulations. It does not only supervise the banks and their holding companies but also all the state charted banks that members of Fed. Furthermore, the Federal Reserve monitors commercial banks agreement over the consumer protection laws regarding the loans, for instance, Truth in Lending Act. It also helps the commercial banks to understand the technical requirements under the law. Service to depository institutions: As the part of the US central bank, the Federal Reserve actively participates in the payment system of the nation in order to help it to operate as efficiently and carefully as possible. Unlike commercial bank, they provide their services without any intension of making profit. However, in some ways Federal Reserve depositary service is same as the commercial bank depositary service; transferring funds, providing cash and accepting the deposits. Service to the US treasury: Federal Reserve offers the numerous services to the banking and financial services to the US treasury, including the two major services; checking account and fiscal agent. In the checking account of the treasury all the revenues of the federal government are credited. As the fiscal agent of the treasury, it provides the facility of auctioning the government securities to the investors when the current expenses exceed the cash recourses.

Managing the money supply: The Federal Reserve uses the three methods for the management of money supply in the country. I.e. open market operations, discount rate policy and changing the reserve requirements. Open market securities: Open market operations involve the trading of US treasury securities with the intension of changing the bank reserves. When need of the expending the money supply arises in the economy, the Federal Reserve purchases the securities from the primary dealers. This increases the reserves of the dealers who in returns increase the reserves of the entire banking system. However, if the Federal Reserve wants to contracts the money supply, then it would sell the securities in the open market. ( Beasley & Brigham, 2011) Reserve requirement: Reserve requirement is the funds that a commercial bank must retain in the vault to support the customer deposits. Hence, every dollar security bought through the OMO, the money supply potentially increases for example; RR is 10%, $1(1-0.1)/0.1 =$9. However, if the Federal Reserve wants to tighten the money supply, it would sell the government securities which results in decrease of the money in the bank accounts resulting decrease in the economy. ( Beasley & Brigham, 2011) Discount rate: Discount rate is the rate that is been charged by the Federal Reserve for lending the money to the commercial banks. Alteration in the discount rates has the impact on the loan amount of the commercial bank ultimately has the impact on the money supply. If the Federal Reserve decreases

the discount rate, then the commercial banks would be more inclined towards the borrowing from the Federal Reserve to meet their temporary shortfalls. Consequently, more loans would be granted to the individuals and business this would in return increase the money supply the market. However, if the Federal Reserve wants to decrease the money supply in the market, it would increase the discount rate. ( Beasley & Brigham, 2011) Conclusion: As the central bank of America, Federal Reserve banks perform a number of roles that has the impact on the economy of the country. With the help of the monetary policy that influences the accessibility of money and credit, the Federal Reserve plays a vital role in monitoring the inflation along with promoting the economic growth. As the supervisor of the commercial bank, it fosters the US financial systems safety and soundness. Moreover, it provides the depository services not only to the commercial banks but also to the federal government. The Federal Reserve uses three methods in order to control the money supply in the market. Discount rate which is the interest rate charged by the federal reserve from the commercial banks when they are facing the temporary shortfall in their required reserves. Second method is the open market operation method, in which the Federal Reserve trades the securities in order to expend or contract the money supply in the economy. Third method is of rate of reserve requirement. In reserve requirement, the funds are been retained in the vault in order to support the customer deposits.

References Besley S., & Brigham E.F, (2011), principle of finance retrieved on 30th may 2012, retrieved from http://books.google.com.pk/books? id=tKQoP5gk4SUC&pg=PA111&dq=methods+of+managing+money+supply&hl=en&sa=X&ei= DN3FT_WmOOLk4QSw0YnsBQ&ved=0CGsQ6AEwCA#v=onepage&q=methods%20of %20managing%20money%20supply&f=false