... control over reserve balances and the funds rate 2 - They use open-market transactions to implement monetary policy and avoid directly affecting private capital, an important con- sideration in the conducting of monetary policy 3 - They are free of credit risk Federal Reserve banks are required to maintain a gold reserve against their liabilities, although increases in the Fed system largely offset decreases in gold stock. A two-tiered gold system of both private and official sectors, each with its own price, can determine the growth of the monetary base by both gold stock and Federal Reserve credit. As for the measurement of the effect of foreign exchange activities on the Fed, four assumptions are made: 1 - U.S. Treasury is usually unaffected to any great extent by foreign money investments, unless the deposits are very large. When the Treasury deposits are increased significantly, the reserve base decreases. 2 - Monetary authorities do not generally ...

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